Schizophrenia about High Deductibles

Published November 18, 2013

You may remember that when Health Savings Accounts were introduced there was almost universal outrage among liberals about the horrendous burden cost-sharing places on all but “the healthy and wealthy.” A press release issued by the Center for Budget and Policy Priorities (CBPP) within a week of the Ways and Means committee approving an HSA bill in 2003 said –

 This legislation would lead many employers to move away from providing low-deductible comprehensive insurance, noted Edwin Park, a senior health policy analyst at the Center and the report’s lead author. Policies with deductibles of $1,000 or more, higher co-payments for medical services, and coverage for a narrower array of health services could well become the norm for employer-sponsored coverage, with employers expecting their workers to pay uncovered costs out of their tax-favored Health Savings Security Accounts, Park stated.

 Low- and moderate-income workers, who would benefit little from the tax breaks that the new accounts would provide, and older and sicker workers, who could face large increases in out-of-pocket health care costs as a result of the loss of comprehensive insurance, could be sharply affected, he added.

A few years later, after President Bush proposed expanding HSAs, Jason Furman, then at CBPP and today the Chairman of the White House Council of Economic Advisers, wrote a similar slam on high deductibles in health insurance, especially if accompanied with a savings account.

 So it comes as something as a shock that today these exact same people are raving about how wonderful the coverage is in ObamaCare’s insurance exchanges. Organizing for Action, Barack Obama’s official grassroots operation emblazons on its website ― “Better Coverage, Lower Costs!”

Then there are two puzzling pieces in The New England Journal of Medicine. The first article “The ACA and High-Deductible Insurance — Strategies for Sharpening a Blunt Instrument,” is by J. Frank Wharam and others. The writers observe that 84% of the enrollees in Massachusetts chose a bronze or silver plan with family deductibles of $4,000 to $10,000 and significant cost sharing on top of that. They say that lower income people in the ObamaCare exchanges will have their out-of-pocket costs subsidized as well as their premiums, but, “the resulting protections may be robust only for persons with incomes below 200% of the poverty level.” They add –

Cover Oregon, for example, estimates that cost sharing for Oregon families with incomes between 200% and 399% of the poverty level will include $5,000 deductibles, 30% coinsurance for many services even after reaching the deductible, and out-of-pocket spending maximums of $8,500 to $12,700.

 An accompanying chart lists the deductible for a family at 400% of poverty at $12,700. What happened to “better coverage, lower costs?”

 The authors of the article, all associated with Harvard University, express none of the hysteria that went along with the roll-out of HSAs, even though HSA deductibles were quite modest compared to ObamaCare deductibles. But they are concerned about the possible consequences.

Unfortunately they are also woefully ignorant and lazy. They say, “Small employers newly required to purchase employees’ insurance may well choose HDHPs (High-Deductible Health Plans) as the least expensive coverage option.” But small employers are not required to purchase insurance and are not penalized for failing to do so.

 The authors rue the lack of research on the effect of high deductibles on “vulnerable populations” – Unfortunately, cost-sharing research over the past three decades has focused almost exclusively on low-level cost sharing (e.g., less than $50 per service). Few studies since the landmark RAND Health Insurance Experiment of the 1970s and 1980s have examined high cost sharing (e.g., deductibles above $1,000 per year) for expensive services, and fewer still have focused on vulnerable populations. But the authors believe this because they looked at a total of two reports from the Robert Wood Johnson Foundation. They completely missed a RAND report entitled, “How Do Consumer-Directed Health Plans Affect Vulnerable Populations?” written almost two years ago. One would have to be willfully ignorant to miss this report. The authors also call on employers to “facilitate contributions to health savings accounts (HSAs)

, especially for vulnerable people,” but it is not clear these mandated plans are eligible for HSAs. If they require first dollar coverage for anything other than preventive services, they are not eligible for an HSA. The more I read reports from people at Harvard, the less respect I have for the institution. Which brings us to the next article, “Full Disclosure — Out-of-Pocket Costs as Side Effects,” written by a team from Duke University. These authors recommend that physicians learn how to talk about costs with their patients. They argue that the financial “side effects” of a treatment program can be just as important as the clinical side effects. They acknowledge that it is extremely difficult for a clinician to know what out-of-pocket costs a patient may be exposed to and very often doesn’t know what the charges will be for a given array of services.

 Now, the authors rely too much on information about financial burdens from the Center for American Progress (CAP). CAP is famous for including any discussion of costs or payment arrangements as a “burden.” CAP seems to think anything not paid in full at the time of service is a burden on patients (except, of course, for ObamaCare.)

 I don’t expect physicians to double as financial advisers, but I agree that they should be more aware of the costs of the treatments they prescribe. In my own case, my doctor prescribed a blood pressure medication. When I went to fill the prescription I discovered it was enormously expensive. I went back to my Doc to see if there was something more affordable available. No one had ever asked him about that, but when he looked into it, by golly there was a list of 25 different meds with prices ranging 1,000 percent, all equally effective.

That is the effect of an empowered consumer. Ultimately physicians will respond to the demands of their patients and as more of us are paying cash for services, we will insist on cost considerations far beyond what any third party payer could do.

 Unfortunately, the ObamaCare approach is far too clumsy to be effective in empowering consumers. The great advantage of funded HSAs is they give patients the means to pay the bill, but also get them to think twice about the costs. It is a carefully balanced approach to growing educated patients. ObamaCare just throws people in the deep end of the pool without any support. It is cruel and mean spirited — just what you might expect from the government.