The enduring stupidity behind High Deductible Health Plans
Surprise, surprise, America’s most popular health insurance plan design is fundamentally flawed.
Before we get going: who am I?
My name’s Marshall and I’ve worked in the health insurance industry (or adjacent) for the better part of a decade. Currently I’m the VP of Sales and Marketing for Decent. I’ve sold a lot of health insurance plans, even helped design several and there’s nothing that annoys me more than the recent growth in popularity of high deductible health plans.
Give me 10 minutes to read this article and you’ll be just as mad as I am.
First things first: what is a deductible?
A deductible is an amount of money that a member of a health plan pays out of pocket before their insurance kicks in to cover some amount of the remaining cost.
These emerged initially as a way to incentivize shopping behavior among health plan members with the hope that financial pressures would encourage them to look for providers with lower rates. Basically, if you have to choose between a $500 MRI and a $15,000 MRI, your health insurance company would very much prefer that you picked the $500 one. A deductible is a way to encourage that decision by sharing the financial liability with the member.
The basic logic is: the higher your deductible is, the more you’ll shop around, and the more you’ll save yourself and the insurance company. Therefore the higher your deductible is, the lower your health insurance premiums can be. Since you’re a good shopper (of course you are, look at you!), you’re going to cost less for the company to insure so it’s only fair you pay less.
The logic behind this plan design caught like wildfire.
There’s truly nothing that armchair economists love more than the introduction of personal responsibility into complex financial systems but there’s one exceedingly obvious problem with this thinking…
Where it all breaks:
Patients don’t know how much they’re going to pay for medical services until after they receive the bill.
It is impossible to be an informed shopper if you don’t know the prices you’re shopping between. That’s kind of the whole point of shopping behavior.
And before you think to yourself, “well, people should just call the providers before they get a service to find out what it might cost in advance,” there are two big reasons why that doesn’t make sense either.
1. That’s not how emergencies work.
Often times individuals using their insurance for large purchases are doing so because they’re medically incapacitated or at the very least, uncomfortable.
2. Even in nonemergency environments medical billing is stupidly, if not maliciously, complex.
Different insurance companies have different negotiated rates with different providers that are almost always in flux. Not only that, but different health insurance plans at these insurance companies have dozens if not hundreds of different ways the payment is actually going to trickle down to the individual on that procedure. That’s not even getting into the member’s annual progress towards their deductibles or out of pocket maxes.
An MRI at a single provider could wind up having thousands of different potential prices billed to the shopper due to these factors.
There’s so much going on here that your odds of receiving an accurate quote on a medical procedure from a willing provider (which is not a given, these rates are one of the most closely protected secrets in the medical industry) are almost nonexistent.
This means people can’t reliably “shop” for their medical procedures
On average — only about 14% of people on High Deductible Health Plans engage in any shopping behavior at all (and those that do, don’t report feeling very effective at it).
It’s hard to overstate what a bad idea outsourcing the burden of reducing healthcare costs from industry experts to the untrained general public was and is. People who have dedicated their careers to reducing the cost of care consistently fail to do so — what hope do people who were, at best, asked to sit through a 45 minute long presentation from a health insurance broker?
So at this point, we’re likely aligned on the fundamental thinking behind these plans being flawed but it’s not the first year they’ve been offered. If people can’t shop effectively, how come High Deductible Plans can maintain lower premiums?
The sad truth is that people on high deductible plans avoid using their coverage because they know they can’t afford it. 79% of surveyed doctors had recent patients on high deductible health plans who delayed or denied care entirely due to the cost of it.
These plans persist because the financial barriers they place between members and receiving care are very effective and all of us in the healthcare industry can conveniently lie to ourselves and say that the savings were due to the “shopping behavior” we finally coaxed out of our insured population.
Why don’t people just avoid these plans then?
There’s a simple reality behind health insurance sales — people buy the plans with the lowest premiums. Unfortunately, high deductible health plans have the lowest premium and it’s not particularly close.
In almost any purchasing environment, High Deductible Health Plans are surfaced first to shoppers due to their low premiums. Here’s a quick comparison of what some online insurance purchasing platforms recommended to me (a 31 year old non-smoker in Austin, Texas):
Only one of the plans on the first page of results I was shown has a deductible under $5,000.
For some context as to how people interact with online search results — the first result on Google accounts for 31.7% of all clicks and only 0.78% of people click on anything on the second page of results. Sorting has a massive impact on the end selection in any online environment and we’re seeing that impact everywhere.
On the individual market — over 90% of the enrollees in ACA plans in 2016 were opting into plans that were considered “high deductible plans,” meaning their deductible was $1,300 (or $2,600 for a family). Many of those enrollees had deductibles close to triple that due to the deductible cap being a much higher $3,350 in 2016. Cut to 2022, and that cap on an individual market has more than doubled in the last six years to $7,050 with some plans offering deductibles as high as $8,550 (honestly I’m not sure how that’s even possible).
That means that the first plans being shown to individuals would require them to pay $7,050 out of pocket before their health insurance kicks in to pay anything at all.
Now, there are people out there that these plans do work for. If they have $10,000+ in an HSA account, it could be a great fit but considering that the median amount saved in an American household is $5,300 total, it’s easy to see how bankruptcies due to medical costs have become a very real threat — even to the insured.
So how do we fix this?
Oh boy. That’s a really hard question but it felt too depressing to wrap up this post at the end of that last section.
Ultimately High Deductible Health Plans are an end result of a system that’s struggling to distribute the financial burden of an ever increasing cost of care.
In 1970, the average spent on healthcare per individual in the US was $1,848 (in the equivalent of 2019 dollars), in 2021 that amount was $11,296. The financial tools we’ve built to help the average person cover this gap just can’t keep up. To lend some context as to how crazy that growth in cost has been — it would be like over a 50 year period, annual auto insurance claims going from a flat tire and some roadside assistance to people totaling their cars every other year.
High Deductible Health Plans are a symptom of the meteoric rise in the average cost of care that we’re seeing in America which is a much more complicated problem to solve than simply asking some brokers nicely to sequence their plan results page differently.
To put it frankly, the quickest, simplest way to address this is through a universal healthcare option. That said, this is America so we probably aren’t doing that any time too soon.
With that off the table, here are a few underwhelming and (probably) ultimately ineffective ways we can try and make a difference against the negative effects of the slow creep of High Deductible Health Plans.
- Mandate that primary care is free to all insured
We take a swing at this at Decent through the Direct Primary Care model. For every member on our plans we pay their primary care physician a flat monthly stipend so that our members never have to pay anything out of pocket to see them. Ironically, this saves us an astronomical amount of money.
Roughly 2/3s of Emergency Room visits can be handled in a primary care setting (which costs about 1/12th as much). We’ve found that through providing free access to primary care, our members tend to use it which drives down our average cost of care substantially.
High Deductible Coverage means that even primary care physicians are paid for 100% out of pocket which forms a mental barrier that prevents patients for seeking care early or establishing habits that can carry them through proper utilization when a perceived emergency occurs.
Health insurance reform is always a little tricky but mandating that all insurance plans come with free access to primary care could be a huge step in addressing some of our utilization issues.
2. Eliminate the IRS’s penalty for withdrawing from HSAs
This is a weird (and sparingly researched) idea but hear me out.
HSAs are ways you can use pretax dollars to cover care when you’re on a High Deductible Health Plan. This can have huge ramifications when it comes to the actual cost out of pocket if something were to occur while on one of these health insurance plans but they are by nature financially inaccessible for a large portion of the population. If you’re living paycheck to paycheck, you can’t afford to lock some amount of your money away in a restrictive account you may or may not wind up using.
BUT — if the IRS were to remove the penalty for withdrawing from these accounts, people could essentially use them like they do a standard savings account now only with the income tax portion deferred to withdrawal if it were to be utilized for non-medical events.
This would make HSAs a tool that everyone could utilize to bring down their out of pocket medical expenses vs. their current construction which really limits their use to people as financially savvy as they are financially comfortable.
3. Make providers publish cash pay rates for all services offered
Insurance billing is complicated but most everyone has what’s called a “cash pay rate” which is essentially what they charge people that walk into their facility to receive care but don’t have insurance.
Different health insurance carriers will have different end billed amounts but a published and searchable list of cash pay rates will at least inform potential buyers directionally as to what they can expect to pay for services before their deductible is met.
There is an awkward reality this will highlight where sometimes, the insurance rates can be several times what the cash pay rate is but that feels like something we should all be aware of anyway.
Some practical advice for you before we get to these systemic updates
Odds are you’re up for your health insurance renewal sometime over the next four or five months. When that does happen, please take a longer look at a plan with a lower deductible or copay options.
Health insurance companies will sell the plan designs that the market wants to buy and your election is a tiny way to cast your vote towards a more equitable and transparent system.
Thank you for listening to my rant and I hope if nothing else, it influences you to choose an insurance plan that you and your family can actually use.
