More on High Deductible Health Plans and the ACA

Yesterday I speculated about what form a health reform deal between Progressives and Conservatives might look take (Universal catastrophic coverage implemented via Medicare).

Like many of the complaints about the ACA, the idea that everyone is forced to purchase the same plan is untrue–it does not mandate a one size fits all policy. Below are actuarial estimates produced by 3 insurance companies commissioned by Kaiser Family Foundation of what various insurance options to be sold in ACA exchanges would look like.

The Actuarial value column shows the percentage of total costs to be borne by a person (there are a series of assumptions made to produce these estimates, that are meant to be illustrative) covered by the mandated benefit package; Plan A, 60% corresponds with the so-called Bronze level package that represents the minimum coverage that persons would have to purchase in 2014 to generally comply with the ACA. You can see that there are other levels of coverage stated in actuarial value terms, 70%, up to 94% that people could choose. Obviously, a higher actuarial value means higher premiums and less out of pocket exposure during the period of insurance, and under the ACA the premium subsidy amount provided to individuals and families varies by income.

Also of note are the different ways to attain the same actuarial value and corresponding out of pocket maximum. Sticking with the Bronze plan (row A) in the Table, Actuarial Research Corporation designed a plan with a deductible of $6,350 and no coinsurance, while Aon Hewitt achieved the same actuarial value with a deductible of $4,350 and coinsurance of 20%. It is true that all of the plans cover the same benefit package.

Several points/questions:

  • The ACA allows catastrophic plans (the max out of pocket allowed in 2014 will be $5950 for individuals, $11,900 for families). I suggested larger deductibles/maximums, but personally I would trade a higher catastrophic deductible/out of pocket max for universal coverage.
  • It is unclear to me how the price charged for care while someone is in their deductible will be set? Presumably that will be an aspect of the plan offered on an exchange in the ACA, but this is an important question, especially for catastrophic plans, and I realize that I am unsure. Under my suggestion, Medicare payment rates could be used.
  • There are different mixes of premiums, deductibles, and coinsurance through which to achieve the same actuarial value. Adding the premium side to this adds more complexity and choices, but you can generally achieve the same premium-side actuarial outcome by a set deductible/out of pocket maximum and income based premium subsidy, or you could modify the deductible/out of pocket maximum by income, probably implemented via a maximum amount of income that could be spent on health care.
  • You have to set a benefit package in some way if you claim to be interested in people making informed choices. Under my suggestion, everything covered by CMS would count toward spending through the catastrophic deductible, and would be covered by Medicare once the maximum out of pocket amount was reached.

Comments

  1. JMG says

    As someone unlucky enough to have switched to a high deductible plan just a few weeks before a gallstone attack I have learned that the whole theory of copays and deductibles is a fraud and smokescreen for more profit for insurance companies. If copays and deductibles are intended to modify behavior, then they should not be applied at all to emergency care for life threatening conditions, where delaying care is likely to be more costly in the end.

    Similarly, my provider will not count my spending at Costco towards my deductible or my out of pocket maximum. So the theory is bogus, as the actual system creates a disincentive for the behavior that we supposedly want to promote.

    In other words, doing what the Chicago School of Economic Gangsters teaches we must is impossible, because I am actually punished for comparison shopping and seeking the lowest price. Not to mention that the provider, Kaiser Permanente, does not post prices and it just yesterday said it would take three days for them to get an estimate of costs for bloodwork, even though they said I should have the bloodwork done.

    Nor will they allow me to count my modest YMCA membership towards my out of pocket max or deductible, even though I have radically improved my blood profile with diet and exercise. Statins, fine, exercise and eating more fruits and vegetables, no way.

    The system for financing sickness care in this country is rotten to its capitalist core and it is all about maximizing profit for the drug and device makers and insurers; as an afterthought, policy wonks can play around the edges in terms of begging and pleading for a little more coverage for folks, only to see them herded into these ruinous plans.

    • kathleen says

      Apologies if this is a duplicate; having some posting problems here…

      If you have to pay for the blood work, I recommend that you check out prices at mymedlab(dot)com which will also allow you to order and pay for your own blood tests. It’s all on-line (but they’re also helpful via telephone), and once you pay they email you a lab order to print out, and you then go to get the blood drawn by regular lab draw station (it’s LabCorp in my area). When the results are available (mostly in a day or two for standard tests) they’re emailed to you and you can print them out and provide them to your doctor.

      In my price comparisons, mymedlab(dot)com is VERY competitive, especially with such labs as UCSF – a recent panel came in at 1/10 of what UCSF charges. The tests are done by regular clinical labs. But the best part for me is that I can order my own tests, when I want them. Paying a lot less would be a boon too, if I had no insurance or only the type you have.

      Full disclosure: I have NO connection to mymedlab other than as a grateful customer.

  2. Ebenezer Scrooge says

    Tell me again the point to deductibles/coinsurance in healthcare?

    Yes, I understand “moral hazard,” and am even capable of distinguishing it from moralism, which leads to “moralistic hazard:” punitive measures designed to make the punisher feel good and incidentally decrease welfare. Paul Krugman writes about moralistic hazard often, in a different context.

    But I don’t understand the moral hazard argument in health care, except perhaps for chiropractic, veterinary services, and a few medical exotica such as cosmetic plastic surgery and lasik. Indeed, the incentive structure generated by copays and deductibles is perverse. Copays and deductibles decrease the incentive for preventative care. Only hypochondriacs enjoy medical treatment. And copays and deductibles really don’t deter the risk-taking that often demands medical care: poor diet, insufficient exercise, smoking, alcohol, and keeping one’s testicles. Indeed, the folk to whom co-pays and deductibles mean the least are those most likely to avoid risky behavior. Mitt Romney is a slim guy, and I know he doesn’t indulge in alcohol.

    Co-pays and deductibles may decrease the incentive to use catastrophic care. But only a particularly callous libertarian (I know, I repeat myself) would view this as a feature, rather than a bug. The rest of us would think that there was something wrong with letting Aunt Mary die after the car crash because she didn’t want to subject her family to the copays.

    • Ebenezer Scrooge says

      (I was writing this post while JMG was posting, so the duplication of argument is unintentional.)

    • Don Taylor says

      The main point in what I wrote is trying to get to a deal on coverage so that we could focus more on quality and cost. There is both over and under-spending. Under spending occurs in ways like @JMG notes, and over spending will not be meaningfully addressed by even very large deductibles because such a small proportion of the population accounts for so much of the cost. And once you blow through the deductible, there is absolutely no incentive to worry about costs. I recount a story in the book of one of my kids being injured in a sporting event, and at one point possibly needing surgery. Such an event would put you straight through even a $15,000 deductible, and there is no way under those circumstances to ‘shop around.’ I suspect most people would desire insurance in the gap.

      The over spending we do is very difficult to address because of the politics of rationing, which in turn is made so powerful by our inability (culturally) to talk about limits in what health care can do. I think a necessary step to ever taking this on is providing at least some coverage to everyone in a simple manner.

      Some say the most likely way to have movement to a single payer is for the SCOTUS to invalidate the entire ACA and the system implode….I don’t see that ever happening in any event, so we have to somehow muddle through the system we have.

      • Mitch Guthman says

        I appreciate all the hard work that went into your post and I don’t mean to keep beating an already decomposing horse, but I still don’t understand the purpose of these hypothetical “negotiations” given that there is quite obviously nobody with whom to negotiate. Sure it must be obvious to you by now that every time you make a “reasonable” proposal in return for nothing, you simply give the Republicans the opportunity to move the goalposts yet again. The only offer from Democrats should be a single payer, NHS style system and you (and everyone else) should simply work resolutely towards that goal,unless and until there is some compromise proposal from the Republicans backed by serious evidence of a good faith willingness to compromise. But until then, nothing.

      • says

        The current Intrade odds for SCOTUS throwing out the individual mandate are 57%. In other words, the smart money (or alternatively stupid, depending on you view of such markets) is divided roughly evenly. There’s no contract for ruling the whole of ACA unconstitutional, which would presumably be considerably less.
        I haven’t bought a contract, but would definitely bet for upholding. Roberts isn’t a Tea Party Republican but a plutocrat one, and will join Kennedy (an old-fashioned small-c conservative) in finding some narrow grounds to throw out the challenge. They don’t want to be responsible for a chaotic upheaval in a tenth of the US economy, still less deprive President Mitt of his moment of glory.

    • MobiusKlein says

      Could co-pays serve a accounting purpose, in dissuading fraud by health care providers?
      If I can open a clinic ‘serving’ 2x the actual number that walk in the door, it would be much harder to do so if I had to fake that number of co-pays. And actually sending the money in to whomever would eat into my profit margin.

  3. Finn says

    Health care is a good that goes, on a person to person basis, from being totally useless to necessary for life in a matter of seconds. It is poorly substitutable because the consumer is always poorly informed (and sometimes not even conscious!). Everyone in the US will use it at some point in there life, indeed, many used it the moment they were born. On top of that, insurance is mostly chosen by the employer, or the options are extremely limited by the employer. As a good it does not yield to market forces and its maladies should not be treated economically with exchanges and subsidies and so on, but politically with single payer or universal coverage. Maybe you are right in that the only way forward is through a compromise like the one you suggest, but a deal with the devil never has the terms you think it does.

  4. says

    If you think about it for more than a second, depending on “typical” expenses, deductibles may actually encourage wasteful spending, especially in the form that they’re currently implemented (individual basis, spotty coverage, yearly accounting). If I know that I’m going to have a major health expense, it behooves me to get through my deductible as early in the year as possible, so that the rest of it will be covered.

    • Byomtov says

      As you point out, a part of the problem is that we see health insurance policies as annual contracts, which creates lots of problems. Have an accident that requires a long hospital stay, several surgeries, and follow-up care and rehabilitation. If you’re unlucky enough to have this happen in December you’re going to pay the deductible twice, while if it happens in January you might get away with only paying once. Does that make sense?

      • says

        Been there, done that with a medical device who rent-to-buy contract extended over a calendar boundary. Some insurance companies will sometimes waive the deductible for events that cross calendar years, but it’s not the kind of thing you can bet on. (Note that you still end up paying the deductible amount, so health-care consumption that offers no value at all, or negative value, is not encourage. But care that offers some positive value is made cheaper by ensuring that you meet a deductible.)

    • JMG says

      Spot on. If I’m going to blow $8k (which is more than I was allowed to move from my IRA into my HSA, but less than the out of pocket limit on my plan) I will have every incentive to get as much medical stuff done this year as possible. But it was the only way we could afford to keep health care at all … My wife is totally uninsurable and I’m self employed (and now probably uninsurable by anyone else at this point too).

  5. Katja says

    I’m generally not a fan of high-deductible/copay plans because of how they work (or rather, don’t work) for low-income or low-discretionary-income households.

    The problem is that these households (which not only include poor families and individuals, but also some startup founders or individuals with a decent income but commensurate levels of debt) are both attracted to high-deductible/copay plans like the proverbial moth to the flame and at the same time cannot handle the financial hit from actually having to pay the deductible.

    This is the inherent problem with making health insurance payments part of a household’s discretionary spending; it creates problems (starting with the unenviable decision of whether to make health insurance one of those recurring expenses that you want to save money on, i.e. gamble on your continued good health) specifically for those households that are in the worst position to deal with these problems.

    • says

      I think it might be useful to restate the first two paragraphs as follows:

      If the difference in cost between a high-deductible/copay policy and a regular one is crucial to your monthly budget, then any injury or illness that invokes your coverage will already have wiped you out.

  6. says

    I guess the perfect will just have to be the enemy of the good here. You guys reject anything that isn’t economically unaffordable, so it’s pretty obvious you ain’t gonna be satisfied.

    By the way, I understand the argument about having to pay for preventive procedures and that being a problem for lots of folks (who somehow can find the money for cable TV and designer whatever’s). What happened to simply making a choice to see the doctor, get the blood test, go for the pre-natal exam, because you want to be healthy, and then paying for it? 50 years ago, that’s what everyone did before comprehensive plans became an entitlement.

    • Ebenezer Scrooge says

      Redwave,
      UK is universal. And cheap. And they do reasonably well on health care indices.
      Is there something about American exceptionalism that makes universality unaffordable here?

      • Katja says

        Well, pretty much any developed country is cheaper than the USA. Considerably cheaper, in fact. It’s not UK-specific. Most get better results for less money, too.

        And it’s not because people don’t pay for their own blood tests, either, as Redwave suggests. About 80% of healthcare costs are incurred by 20% of all Americans (with chronic or otherwise expensive conditions). There’s only so much cutting you can do from the remaining 20% of healthcare costs (even if you do the penny-wise, pound-foolish things Redwave suggests). In short, the vast majority of costs is incurred because people are actually and seriously ill, not by the “spendthrift poor”. And those costs are poorly contained by our so-called market-based system.

        Related: “Why an MRI costs $1080 in America and $280 in France”, by Ezra Klein.

      • says

        It’s a myth that it is affordable in the UK. The National Health Service is very popular, but it’s bankrupting the country. Socialism is popular until the piper has to be paid.

        • Katja says

          Huh? The NHS has its [1] share of problems, but bankrupting the country is not one of them. Health expenditures are increasing, but at a rate that is similar to other countries. The budget of NHS England was 106 billion GBP in 2011/2012, total healthcare expenditures for NHS Scotland was 11.4 billion GBP in that year. In short, we’re talking about some 2000 GBP per person in annual health care expenditures, which are primarily financed through National Insurance, a payroll tax [2] that is modestly progressive (12%-14%, about 600 GBP/month exemption).

          Nothing here is bankrupting Great Britain; the biggest singular problem that the NHS has, if any, is that it’s underfunded (hence, waiting lists). But healthcare is being delivered very efficiently.

          [1] Strictly speaking, there are four different NHS subdivisions with subtle differences in how they work and how they are being financed: NHS England, NHS Wales, NHS Scotland, and NHS Northern Ireland. For example, in Scotland, there are no prescription charges.
          [2] National Insurance also includes a pension scheme; it’s basically Social Security + Medicare + pre-65 health insurance.

          • navarro says

            redwave72 is being very unserious here. every modern industrialized society has a socialized health care system which provides better outcomes based on a variety of indices and lower costs per capita than our system provides. i don’t know what he’s trying to get out of this discussion other than an opportunity to practice his rhetoric.

  7. Katja says

    Redwave72: “What happened to simply making a choice to see the doctor, get the blood test, go for the pre-natal exam, because you want to be healthy, and then paying for it? 50 years ago, that’s what everyone did before comprehensive plans became an entitlement.”

    Because, well, 50 years ago, things were just a tiny bit different (the order-of-magnitude kind of tiny, mind you).

    Prenatal care because you want yourself and your baby to be healthy? Runs to around $2,000 these days.

    • SamChevre says

      Right: and that’s a significant part of the problem. There is no reason whatsoever that 12 visits–weight, blood pressure, urine protein test at each visit, and one blood sugar test–should cost $2000.

      • says

        Actually, there kinda is a reason: at the OB/Gyn practices we’ve been to, at least, that’s a flat rate. So the uncomplicated no-interesting results patient is effectively subsidizing the patient with gestational diabetes, placental abruption and a history of pre-eclampsia. (And from both a practice-management and a public-health point of view, you want it that way, because you really don’t want the interesting patients to skip visits or tests because they can’t afford them. One day in NICU costs as much as several uncomplicated courses of prenatal care, and nobody spends just one day in NICU.)

      • says

        Sam, it doesn’t help that the typical Ob-gyn has a six figure annual malpractice insurance premium to pay.

        That aside, I don’t disagree that the system is out of whack, but my view is that it is the accumulation of interference by well meaning legislatures, state and federal, that has disrupted the economics of the system.

        Since there is little hope of putting all this toothpaste back in the tube, we are going to have to social engineer some solution. Maybe out of the 50 states plus the District, someone can engineer an affordable approach that also provides better outcomes. Haven’t seen it yet. The Massachusetts experiment is already breaking down. PPACA was still born really, since it was scored wrong to begin with (and once the frauds like CLASS were taken out, it is clear to even the dimmest of bulbs that the program is hopelessly unsustainable).

        Interestingly, my own experiences (and I have had quite enough of them, thank you) with our medical system demonstrated that it is quite simply miraculous in terms of what doctors can do. I would hate to see us take a backward step from that. So, as we all agree, the issue is funding it, and keeping the right incentives.

        • Cranky Observer says

          Once again, Germany and its health care system are simply ignored by the radical right.

          Cranky

          By the way, how did that malpractice reform thing end up affecting rates I Texas?

          • Katja says

            Well, the problem with malpractice claims is not that they contribute a lot to overall healthcare costs (a fraction of a percent last I checked) but that they affect certain types of specialists (especially OB/GYNs and surgeons) disproportionately and may make running a practice financially comparatively unattractive (or even unaffordable) for these specialists, leading to a shortage.

            This, by the way, is not a US-specific problem, since it’s not so much a matter of healthcare costs, but a financial disincentive to opening a practice as a specialist. Other countries (including Germany) suffer from it, too. The biggest problem with OB/GYNs in particular is that a medical error during birth may lead to requiring life-long financial support for the child.

            The best solution that I know of for that problem is what Scandinavia and New Zealand do: Rather than dealing with malpractice claims through lawsuits, malpractice claims are settled through a universal no-fault compensation scheme. This has the additional benefit that as a malpractice victim you don’t have to prove that the physician was culpable; you’ll be compensated if you are the victim of malpractice even if individual culpability is difficult to establish and the process of getting compensation is much less painful as it does not involve litigation.

            The UK’s solution is that for malpractice claims under tort law NHS Trusts and Health Authorities are vicariously liable for malpractice claims, not individual physicians; in short, you will sue the NHS Trust in lieu of the physician, and the NHS Trust will not seek compensation from the physician for damages awarded. That keeps physicians from having to worry about the financial aspects of malpractice claims (of course, if the malpractice is serious enough, such as Keith’s recent examples of doctors being under the influence, they may still face disciplinary consequences).

          • navarro says

            for ob/gyn practitioners, the cost of medical malpractice still increased at a rate of about 10% a year after the damages caps were placed.

          • Cranky Observer says

            = = =
            navarro says:
            May 18, 2012 at 2:59 pm

            for ob/gyn practitioners, the cost of medical malpractice still increased at a rate of about 10% a year after the damages caps were placed.
            = = =

            Which clearly indicates that there is something going on far more complex than the simplistic libertarian-Republican thesis advanced in this thread.

            Cranky

    • Ebenezer Scrooge says

      Katja,
      Redwave’s point wasn’t economic; it was social. He postulates a kind of New Libertarian Woman, the rugged sort who thrived in the good old days of 1890. He contrasts her to the much sorrier human being of today: a creature of Muslim Kenyan Socialism. Of course, the New Libertarian Woman is cousin of the New Socialist Man, who existed in the good old days of primitive communism. Like her cousin, her rebirth will entail great short-term human misery, but the world will be all the better for it.

      Sheesh, today’s movement conservatives exemplify everything that turned me off of both the New and Old Left: the Rosseauvianism, anarchism and puerility of the New Left, the puritanism, ruthlessness and rationalism (in Oakeshott’s sense) of the Old Left.

      (Redwave, I don’t know if this fits you as an individual. You’ve had a number of comments–some very good–on this site but not so many that I feel I know you well. But, consciously or not, your post recapitulates a thoroughly discredited theme of the Old Left.)

  8. Ken Doran says

    Question: Can a health care finance reform be devised that is sufficiently feeble, a sufficiently tiny improvement on the current horribly flawed “system”, sufficiently generous to the insurance industry, that conservatives will support it consistently and in good faith? Answer: No. Mr. Taylor, you are wasting your time.

    • SamChevre says

      Wrong question: it’s not the insurance industry, it’s doctors and hospitals, that are the key moneyed constituency for “it’s working for us.”

      • navarro says

        the fact that doctors and hospitals can work for the insurance industry tells me they can work for anyone, even the government. therefore mr. doran’s question is the more applicable one.

      • Katja says

        Actually, the insurance industry is part of the problem.

        The thing we want to be looking at there is the so-called Medical Loss Ratio (MLR). It describes the part of an insurer’s revenues that goes towards covering actual medical costs (if the name sounds odd, it’s because it’s from the insurer’s perspective — that’s money they lost and that they can’t profit from). Whatever remains has to cover administration, advertising, sales, and profit.

        The PPACA required the MLR to be a minimum of 80% for small-group plans and 85% for large-group plans. And, interestingly enough, insurers have been mailing out rebate checks this year as a consequence, so, clearly, several have been below that minimum.

        To be clear, an insurance company with an MLR of 80%-85% does not actually make 15%-20% profit; actual profit is less (often substantially less), but there’s also administration, advertising, sales, etc. Still, those 15%-20% are essentially overhead; about that much out of your insurance payments is being wasted.

        Yet, in comparison, Medicare has an MLR of 97% (in other words, an overhead of 3% of its revenue). Why and how? Not only does Medicare not have to make a profit, Medicare has a much simpler and unified health plan structure (as opposed to the dozens of complicated plans with plenty of fine print your typical insurer has), requiring less complex paperwork and claims processing, does not have to worry about advertising for or selling its plans, etc.

        As a consequence, we’re leaving a lot of money on the table by employing for-profit insurers as middlemen — not just because of their need to make a profit, but because the way they make their profits is inherently inefficient [1].

        [1] In all fairness, one advantage that Medicare has is that it provides health insurance to older people; thus, the average size of a medical claim is larger than for other insurers. If you assume that the administrative overhead per claim is roughly constant (not entirely true, but let’s assume it for the sake of simplicity), then that will result in lower administrative costs per dollar spent on medical claims, or a higher MLR. Still, that’s only one factor, and private sector MLR used to be much higher a couple of decades ago, too.