The rapid increase in health insurance deductibles over the last several years is rooted in traditional microeconomic theory: raise the price of a good or service and demand will go down. The price elasticity of demand – that is, the rate at which demand decreases as price increases – is affected by a wide range of variables such as the availability of lower cost substitutes, the degree of latitude involved in the purchasing decision, and the amount of discretionary income available to the consumer. In general, however, as prices rise, demand falls.
The theory behind higher insurance deductibles assumes that patients will buy less and shop more diligently when they are responsible for a higher share of the spend. A cynical but unavoidable corollary to the assumption of price-elastic demand is the certainty that more of the spend will be shifted to the patient and away from the insurer whether or not any impact on demand materializes. Approximately one in four covered workers is now enrolled in high-deductible health plans, up nearly 85 percent over the last five years. Almost 90 percent of health insurance exchange purchasers selected bronze or silver plans (involving higher deductibles) in 2015. Early returns are beginning to come in with respect to the impact of higher out-of-pocket responsibility on utilization. A study reported in April 2015 by Truven Health Analytics compared beneficiaries covered under high-deductible health plans to matched cohorts of beneficiaries covered under more traditional benefit plans.
At first glance, the higher deductibles appear to have had the desired effect. Enrollees covered by consumer-driven health plans (CDHPs) – those with the higher deductibles – spent about $500 per person less than their counterparts who were covered by more traditional benefit plans. Notable among the sources of savings were an increase in the use of generic drugs and reduced utilization of physician office visits, laboratory services and radiology – in particular MRIs and CT scans. To the extent that these savings arose from a reduction in unnecessary utilization, the microeconomic principles of price sensitivity may have worked.
Suspended just beneath the surface, however, is evidence suggesting collateral damage. Enrollees in high-deductible health plans were less likely to receive care for existing chronic conditions than their counterparts who were covered by traditional benefit plans, and rates of adherence to recommended guidelines were generally lower than expected for the CDHP population. In addition, according to the Truven study, the incidence of members with newly diagnosed chronic conditions was lower than expected for the high-deductible cohort, indicating potential under-diagnosis and under-treatment of chronic conditions which, if not carefully managed, have the potential to decompensate into extremely costly episodes of care. Underscoring the likelihood that high insurance deductibles lead to under-diagnosis of potentially serious illness is the observation that mammogram and cervical cancer screening rates were below expectations for the CDHP cohort when compared to matched beneficiaries covered under traditional benefit plans.
The findings from a series of consumer surveys published in Health Affairs suggest that the responses of patients to higher deductibles may not reflect the level of informed decision-making that forms the basis of economic theory. Overall, only 5 percent of insurance beneficiaries correctly identified all of the services applicable to their deductibles and only 2 percent knew the amount of the deductible and what it covered. Patients with less generous benefits were significantly more likely to know that they had a deductible but were no more likely to know which services applied to it.
Contributing to the observed reduction in early diagnosis and compliance with standard treatment plans under high deductibles is the fact that only 18 percent of survey respondents who were covered by high-deductible plans understood that the deductible did not apply to preventive office visits, medical tests and screenings. Roughly one in five said that they had delayed or avoided a preventive office visit, test or screening due to cost. Those who were confused about the exemption from deductibles were significantly more likely to report avoiding preventive visits due to concerns over costs.
On the flip side, nearly one-third of beneficiaries thought that all office visits, both preventive and non-preventive, were exempt from the deductible and almost half believed that deductibles did not apply to non-preventive medical tests. These findings cast a shadow on the assumption that the impact of higher deductibles is in any way carefully designed. Just as likely, if not more likely, is the hypothesis that higher deductibles trigger indiscriminate utilization reduction among only a subset of beneficiaries and that the effect extends to services that were intended to be exempt such as prevention and early detection. What is clear is that higher deductibles are poorly understood by the consumers whose behavior they were intended to influence.
What we know about the underlying biological cohorts within any large population should inform benefit plan design and public policy moving forward. The vast majority of any population is healthy. What moves a person from the healthy majority to the costliest subset of the population is an acute hospitalization or the onset of a serious chronic illness. Nearly two-thirds of the spending for a commercially insured population arises from serious illnesses like cancer or strokes, chronic conditions like asthma or congestive heart failure, or unavoidable and largely unpredictable single events -- an appendectomy; a cholecystectomy; child birth; an injury.
Higher insurance deductibles have the potential to discourage care for chronic conditions and they will not impact unavoidable and unpredictable acute illness or injury. They can reduce unnecessary elective utilization for low-acuity needs, leading to moderate savings, but they are ineffective in avoiding acute illnesses and their related hospitalizations. For most of us, a hospital admission is the last thing we hope for – going back to microeconomics, acute medical purchases tend to be non-discretionary. As a result, the overall impact of higher insurance deductibles on total health care spending will be marginal.
It is the unintended consequences of higher deductibles that merits close attention, however. If chronically ill patients postpone necessary services, fail to adhere to recommended treatment plans and interrupt medically beneficial drug therapy as a result of financial barriers, the incremental costs resulting from their decompensation can quickly dwarf any marginal savings that accrue among the healthy majority. Interestingly, the proponents of “consumerism” in health care very often embrace early detection as an integral plank in their economic platform, yet the evidence shows that higher deductibles discourage patients from seeking mammograms and cervical cancer screening. The fact that 98 percent of insurance beneficiaries fail to understand either the amount of their deductible or which services apply toward it tells us that the savings accruing from higher deductibles arise from indiscriminate utilization reduction, including preventive services, early detection and essential care for chronic illnesses.
High deductibles are a blunt instrument when dealing with health care spending. When the sledgehammer hits the target – discretionary utilization of unnecessary services – we get the desired result. But swinging a sledgehammer in a confined space while surrounded by vulnerable non-targets – like the chronically ill – can have unintended and very expensive consequences.
