How Much Of The Cost Should The Patient Bear?

A striking feature of the insurance offered on the ObamaCare health insurance exchanges is the imposition of very high deductibles. For example, the law allows the deductible to be as high as $6,600 for an individual and $13,200 for a family in 2015. A Kaiser Foundation survey finds that on the average, deductibles in the exchange plans are about twice as high as the deductibles in a typical employer plan.

Defenders of this practice argue that higher cost sharing makes patients more prudent and careful shoppers in the medical marketplace. This is undoubtedly true. On the other hand, high deductibles may discourage patients from getting needed care. In a post at The New York Times, Austin Frakt explains what can go wrong:

A number of studies document the adverse effects of cost sharing on sicker patients. When applied indiscriminately, cost sharing can hurt the sicker patients by prompting them to delay or avoid the preventive care they need. A 2012 study showed that higher cost sharing reduces spending on physician visits and drugs, but can increase hospital spending. When Medicare beneficiaries face higher cost sharing, hospitalizations go up, not down, especially for those with chronic illnesses.

In a previous post I argued that the deductibles we see in the exchanges are not the result of unfettered competition in a free health insurance market. Instead they are the product of the perverse incentives health plans face to attract the healthy and avoid the sick. The insurers reason that the healthy tend to buy on price, ignoring the out-of-pocket charges they may have to pay in the case of an adverse health event. People with serious health problems and who plan to enter the system and spend money are likely to be deterred by such plans.

However, the healthy can always become sick. That’s why they are buying health insurance. And if their deductible is as high as one-third of their annual income, that could clearly discourage care.

Over the years I have written quite a lot about what an ideal health insurance plan looks like. It would have money in a Health Savings Account for conditions and procedures over which patients can exercise a lot of discretion and for which it is appropriate that they exercise discretion – regardless of the size of the expense. At the same time, it would have first-dollar coverage for conditions and procedures where you don’t want money to be a barrier to care, regardless of the patient’s preferences.

Unfortunately, current law discourages ideal health insurance policies. The Health Savings Account (HSA) law requires an across-the-board deductible, regardless of the condition or the procedure. The Health Reimbursement Arrangement (HRA) rules don’t allow patients to keep the money they don’t spend. And the Flexible Spending Account (FSA) rules are use-it-or-lose-it, encouraging wasteful end-of-year spending.

The rest of the world, meanwhile is finding new and innovative ways to transfer funds to patients who agree to manage their own care – especially long term care.

It’s time to seriously re-think our public policies toward medical savings.

Originally posted on Forbes on May 6, 2015.