Skin in the Game
When it comes to health care, people don’t shop, they stop
It’s no secret that health care costs are rising. Employers, feeling the squeeze of increased insurance prices, are responding by offering their workers health care plans with increased cost sharing. These plans hope to save money by encouraging patients to “shop” for health care, finding lower prices and better value like consumers at a grocery store.
The price shopping or consumer view of health care is a popular one. It is, after all, how we buy everything else. In a study published in 2017, 70 percent of survey respondents believed that health care would be better if patients shopped for their health care based on cost and quality. 70 percent of patients also say that their out-of-pocket costs are important when choosing a doctor.
However, shopping for health care is a lot harder than it sounds. According to that same study, only 13 percent of patients have actually asked for information about what their out-of-pocket costs would be. Even fewer, just three percent, had actually “shopped” for a procedure by comparing prices between two or more providers.
Yet this consumerism theory remains popular. Despite growing evidence that Americans just don’t shop for health care, many policymakers hope that by giving patients more information and exposing them to the costs of health care, we’ll finally achieve a health care system that functions like a mall or grocery store. They call it “skin in the game.”
As employers look to increase employee cost sharing in health plans, the High Deductible Health Plan (HDHP) has become more and more popular. These plans involve a lofty annual deductible, which is the amount patients must spend (not including premiums) before insurance companies will cover the rest of the bill. Compared to other plan structures, HDHPs are cheaper for employers and have lower monthly premiums.
The IRS definition of a HDHP is any plan with a deductible greater than $1,350 for an individual. This distinction from more traditional coverage is beginning to lose its meaning as deductibles climb ever higher and more employers shift their covered employees into HDHPs. Currently, the average deductible (for any plan with a deductible) for single coverage is $1,478. The average deductible for a HDHP paired with a health savings account is, understandably, much higher at $2,199.
The number of workers enrolled in a HDHP is also skyrocketing. In 2006, just 4 percent of workers were in a HDHP combined with a health savings account or health reimbursement account. In just a decade, 30 percent of employees are now in HDHPs with a health savings or health reimbursement account. As of 2016, 51 percent of workers are in plans that have a deductible greater than $1,000 for a single person. Small companies (fewer than 200 employees) turn to high deductible plans more frequently than their corporate counterparts. Nearly 2/3 of small business employees are enrolled in HDHPs.
Shifting the cost of the deductible to employees makes the plan cheaper for employers. The upside for employees is a lower monthly premium. At the macro level, policymakers who favor HDHPs say that exposing patients to greater cost sharing while they pay for services beneath the deductible limit (the patient’s “skin in the game”) means they’ll make ‘better’ personal choices. Since patients are spending their own money and not the insurance company’s, policymakers hope that they’ll shop for lower cost, high value services and thus lower overall health spending.
Unsurprisingly, these increasing costs pose a serious financial risk for families.
A 2017 paper by Jon Kolstad and a team of economists reveals why this happens. The study illustrates two main points about patient behavior. First, it builds on the evidence that patients don’t engage in price-shopping. The study followed workers at a large company as it switched from first-dollar insurance to high deductible plans. In the two years after changing plans, the company’s spending on health care decreased 11–13 percent, but not because of employees choosing services with a lower price tag.
The researchers found that the decrease was due entirely to employees using fewer health care services, including necessary visits.
The study also illustrates how patients change behavior based on “spot price,” or the price given when they seek care, instead of the deductible limit. 90 percent of reductions in care seen in the study occurred in months where patients were below the deductible. Half of these changes came from the sickest half of patients — those who are virtually guaranteed to hit their out-of-pocket limit during the year.
HDHPs rely on yearly, contracted deductible limits, making them predictable. Yet that’s at odds with how people behave: we rely on what’s in the bank and what their next paycheck will cover. For many families, the deductible is higher than their household assets.
As a result, even patients with predictable health costs and who should expect to exceed their deductible each year — like someone who needs routine therapy or medication for a chronic illness — will choose to forego health care services to avoid short-term costs.
In the study, even the high income, high information patients (90 percent of participants made more than $100,000 annually) stopped care instead of shopping for care. In even this best-case scenario, price shopping doesn’t appear to work for patients.
It’s not surprising then that the problem of foregone care is worse for low-income groups. Previous studies have also shown that in the face of high deductibles, patients will forego care, with low-income patients particularly hard-hit. Beyond increased financial risk, the incentive HDHP enrollees face to skip or cut out medical visits can lead to dire health consequences.
Proponents of HDHPs and price shopping contend that patients would be better served by stronger price transparency initiatives. Yet research like the Kolstad et al. study (or this one) show that even under the best circumstances, patients don’t use price transparency tools. It may be time for policymakers to let go of consumer thrift as a national cost-saving method. Especially as premiums and deductibles continue to rise, that thriftiness will increasingly lead to patients foregoing a trip to the doctor when they need it most. Instead, the focus should turn to policies and health plans that don’t put our health on the line.
