The High Deductible Plan: A Bullet, Surely – But Hardly Silver

Last autumn, in a blog titled “Slowing Health Costs? Not for Employees” we highlighted a 2015 employer survey by the Kaiser Family Foundation and HRET demonstrating how health plan deductibles have outpaced the wages of plan participants. The survey showed that deductibles have increased by 67% over the five years, while enrollee wages have grown by 9%.

To us, such a disparity, suggests that employer strategies for health benefits conflict with and even undermine their own compensation and salary strategies.  The New York Times recently wrote about a National Bureau of Economic Study,  which suggests that the news on high deductible plans may be even worse:  Apparently deductibles aren’t not even really effective – at least not as they’re being used.

The theory behind high deductibles seems economically and psychologically sound: If you give employees the financial incentive to shop for health services and provide them with the internet-based tools they need to identify pricing differences, they will make sound, rational decisions about where to go for care.  But as the National Bureau for Economic Studies concluded in their study, these plans are a very blunt instrument.  Yes, the researchers found that high deductibles reduced overall employee health care spending by about 13 percent annually.  But they also observed that:…nearly the entire decline resulted from an outright reduction in the consumers’ demand for services, rather than from them price shopping or substituting less costly procedures. In fact, there was actually a shift to more expensive providers. This was despite the employees being offered a tool to search for doctors by location, specialties, fees, and other factors, as well as to compare pricing of such standardized services as MRIs.

The report goes on to note that some of these avoided services were “likely of high value in terms of health and potential to avoid future costs.”

So what’s the takeaway?  At our December meeting, we suggested that health care should be segmented into three distinct types:
primary, episodic, and catastrophic. Further, we argued that because each of the three types presents distinct challenges, each  requires a distinct and different benefit approach.  Here’s how we’d apply that theory to deductibles:

  • Primary Care:  Primary care services are already typically under-utilized and significantly under-priced.  It’s difficult to see how any deductibles – not to mention high deductibles would do anything other than further discourage what is probably the most important supply-strategy employers can have.  Appropriate primary care can reduce admissions, minimize hospitals, avoid much catastrophic care, and even reduce the cost of specialty drugs.  These are high value services and should be encouraged.
  • Episodic Care:  This is probably the sweet-spot for the across-the-board use of deductibles. Many of these services are significantly over-utilized and their prices vary unjustifiably in virtually every community.  The intelligent application of deductibles here – such as applying them to providers who are deemed to be “above market” and/or of lower quality  – makes great sense when accompanied with education and tools.
  • Catastrophic Care:  Catastrophic care differs from episodic in that the need is almost never in doubt and the site of care may be crucial to survival. Typically, the very highest quality providers are actually lower cost because of their volume and lower complication rates.  For these services, designated centers of excellence make sense and the selection of these centers – based strictly on their quality – could be reinforced by waiving deductibles.

The bottom line:  By now we should know that there are no silver bullets in health care.  Deductibles can be effective, but only if applied in limited ways.