High Deductible Insurance Plans and Cost Sharing

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I am in Boston at a annual medical meeting so I didn’t have the ability to post this issue on time. But I thought that it was important to continue our discussion of health care. One of the issues that I wanted to discuss as we look at some of the changes suggested by our presidential candidates is the use of cost sharing and the high deductible insurance plans, which is what happened with the Affordable Care Act/ACA or Obamacare. Cost sharing was always thought to be important in order that patients don’t over use the system and hopefully become involved their care and are incentivized to get involved in preventive health care. The idea of deductible strategies in insurance plans was introduced in managed care and the health maintenance organizational plans. When both you and your health insurance company pay part of your medical expense, it’s called cost sharing. Deductibles, coinsurance and copays are all examples. Understanding how they work will help you know when and how much you have to pay for care.

  • A deductible is the amount you pay for health care services before your health insurance begins to pay. Let’s say your plan’s deductible is $1,500. That means for most services, you’ll pay 100 percent of your medical and pharmacy bills until the amount you pay reaches $1,500. After that, you share the cost with your plan by paying coinsurance and copays.

Coinsurance on the other hand is your share of the costs of a health care service. It’s usually figured as a percentage of the amount we allow to be charged for services. You start paying coinsurance after you’ve paid your plan’s deductible.

Here’s how it works. Lisa has allergies, so she sees a doctor regularly. She just paid her $1,500 deductible. Now her plan will cover 70 percent of the cost of her allergy shots. Lisa pays the other 30 percent; that’s her coinsurance.

A copay is a fixed amount you pay for a health care service, usually when you receive the service. The amount can vary by the type of service. You may also have a copay when you get a prescription filled.

For example, a doctor’s office visit might have a copay of $30. The copay for an emergency room visit will usually cost more, such as $250. For some services, you may have both a copay and coinsurance.

What does this mean to the purchaser of an insurance plan?

When choosing a plan, one needs to think about how much they use their insurance and how much protection they want against unpredictable expenses. Then they should look at the plan’s deductible, coinsurance and copays and find what works best for them. Here are a few things to consider.

A plan with a high deductible will have cheaper monthly payments. But you’ll pay a lot upfront when you need care. You can also look for plans that cover some services before you pay your deductible.

However, typically with coinsurance, the lower a plan’s monthly payments, the more they will pay in coinsurance.

While with copayments included as part of the insurance plan if you visit your doctor or pharmacy often, you might want to choose a plan that has a low copay for office visits and prescriptions.

Because the ACA is causing huge increases in deductible there are a number of important things to know about deductibles:

  • Having health insurance can lower your costs even when you have to pay out of pocket to meet your deductible. Insurance companies negotiate their rates with providers and you’ll pay that discounted rate. People without insurance pay, on average, twice as much for care.
  • A health insurance deductible is different from other types of deductibles. Unlike auto, renters, or homeowners insurance, where you don’t get services until you pay your deductible, many health insurance plans provide some benefits before you meet the deductible.
  • All Marketplace plans cover preventive care. Screenings, immunizations, and other preventive services are covered without requiring you to pay your deductible. Many health insurance plans also cover other benefits like doctor visits and prescription drugs even if you haven’t met your deductible.
  • In 2014, there’s a $6,350 maximum for individual out-of-pocket costs for in-network services. The maximum for families is $12,700. Even if you choose a high deductible catastrophic plan, your out-of-pocket costs should not exceed this limit.
  • Over 70% of Marketplace plans have deductibles under $3,000. When you choose a health insurance plan, it’s important to understand what your insurance company covers without requiring you to pay your deductible. Then you can decide whether you want a plan with lower monthly premiums and a higher deductible, or one with a higher monthly premium and a lower deductible.

Also, since deductible costs are out of pocket costs health insurance premiums paid with your own after-tax dollars and these deductible costs are tax deductible. For example, if you purchased health insurance on your own through a health insurance exchange or directly from an insurance company, the money you paid toward your monthly premiums can be taken as a tax deduction.

  • Silver plans can save you more. If you qualify for lower out-of-pocket costs and choose a Silver plan, you can save more with a lower copay and a lower deductible. If you qualify, you’ll get the out-of-pocket savings benefits of a Gold or Platinum plan for a Silver plan price. You can choose any category of plan, but these out-of-pocket savings apply only if you enroll in a Silver plan.
  • Heather Caspi looked at the premise that high-deductible health plans should result in lower healthcare costs may be misguided, suggested a new study from the National Bureau of Economic Research.
  • The researchers looked at a firm that moved more than 75,000 employees from a plan with no deductible into one with a $3,750 deductible in 2013 to see how that impacted their healthcare patterns.
  • Rather than shopping for lower-priced healthcare options, even though they were provided a tool to do so, plan members simply cut way back on their healthcare–which is not entirely good news.

Average per-patient healthcare spending dropped 15% in just one year, the study found. However, while workers reduced their use of “potentially wasteful care,” such as imaging services, they also reduced their use of “potentially valuable care,” such as preventive visits. Notably, the sickest workers were most likely to skimp on care until they hit their deductible.

The finding suggests patients aren’t catching on to healthcare price shopping, even when incentivized to do so with a $3,750 deductible and a $3,750 subsidy for their health savings account.

“I am a little bit surprised at just how poorly patients were able to do when looking at very similar products, like MRI scans, and with a shopping tool,” study co-author Jonathan Kolstad told Vox. “Two years in, and there’s still no evidence they’re price shopping.” He suggests over time, the reduced use of healthcare could result in sicker workers and higher overall costs.

This study is forcing economists to rethink high-deductible health insurance.

The National Bureau of Economic Research study “What Does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics

Fierce Health Payer” found that high-deductible plans reduce use of health services.

Zarek C. Brot-Goldberg et. al discussed that the goal of deductibles in health care insurance plans were supposed to decrease prices, quantities and influenced spending dynamics. Measuring consumer responsiveness to medical care prices is a central issue in health economics and a key ingredient in the optimal design and regulation of health insurance markets. They studied consumer responsiveness to medical care prices, leveraging a natural experiment that occurred at a large self-insured firm, which forced all of its employees to switch from an insurance plan that provided free health care to a non-linear, high deductible plan. The switch caused a spending reduction between 11.79%-13.80% of total firm-wide health spending ($100 million lower spending per year). They decomposed this spending reduction into the components of (i) consumer price shopping (ii) quantity reductions (iii) quantity substitutions, finding that spending reductions are entirely due to outright reductions in quantity. They found no evidence of consumers learning to price shop after two years in high-deductible coverage. Consumers reduce quantities across the spectrum of health care services, including potentially valuable care (e.g. preventive services) and potentially wasteful care (e.g. imaging services). They then leveraged the unique data environment to study how consumers respond to the complex structure of the high-deductible contract. They found that consumers respond heavily to spot prices at the time of care, and reduce their spending by 42% when under the deductible, conditional on their true expected end-of-year shadow price and their prior year end-of-year marginal price. In the first-year post plan change, 90% of all spending reductions occur in months that consumers began under the deductible, with 49% of all reductions coming for the ex ante sickest half of consumers under the deductible, despite the fact that these consumers have quite low shadow prices. There is no evidence of learning to respond to the true shadow price in the second year post-switch.

So, as I point out with the studies deductibles force people to make decisions and they are not always the best decisions for the patient and most likely the health care plans become catastrophic health care plans. I have seen the results in my practice where I am seeing patients their treatment for cancers until either they have filled their deductibles or now it is an urgent situation. Cancers should be treated early and the earlier that we see the patient and start treatment the more successful we are and the better the survival rate. Are we getting closer and closer to the “death panels? I leave that assessment for you all. I just don’t see an improvement in the care of our patients, but the higher the cost to the patients the more difficult patients will be able to make good decisions and see their doctors early to avoid the higher costs.

The real problem is as we add more and more people to the exchange programs, including the immigrants, are we are going to force a continual increase in premiums and increases in deductibles. How else will we pay for the ACA. Unless we then go the way of our European counterparts-increase in taxes in the form of increases income taxes and value added taxes. If we continue to increase the deductibles I predict that we will see no improvement in the care of our patients as they continue to show up in the office with late stage disease or present to the emergency rooms.

Is this any way to run a health care system?

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