Charging Patients More Upfront Leads to More Affordable Healthcare

To scholars studying the ins-and-outs of the U.S. healthcare system, the phrase “bending the cost curve” (lowering the cost growth of healthcare services) has become a mantra spread from one policy lunch to another. To millions of real Americans dealing with exorbitant medical bills, though, lowering medical costs is the single most important thing that policymakers can do to ease anxiety and improve quality of life. A recently-released study suggests that costs can in fact be lowered, but counterintuitively through higher-deductible healthcare plans. In other words, more skin in the game means lower costs for consumers and eventually taxpayers via lower federal health program costs.

In response to rising insurance premiums, many consumers and employers are opting for high-deductible (or “consumer-directed”) health insurance plans, in which patients pay for smaller, more ordinary services out-of-pocket (such as doctor’s visits), and more expensive medical situations (e.g. emergency care and surgery) are paid for by the insurer. According to a new study by the Health Care Cost Institute, “individuals enrolled in consumer-directed health plans (CDHPs) in 2016 had 13% lower total spending, on average, than individuals not enrolled in CDHPs.” The study examined more than 10 million individuals enrolled in employer-sponsored plans, and roughly a quarter of beneficiaries were enrolled in high-deductible CDHP plans.

Unsurprisingly, patients in these plans had more exposure and sensitivity to costs.  These patients were also slower to rack up astronomical bills. Not only was their total spending lower, but their spending growth was also lower. Spending growth was more than 20 percent higher for low-deductible beneficiaries than high-deductible beneficiaries, a significant sum considering how quickly employers are increasing high-deductible offerings to their employees. Of course, differences in spending level and growth could be because of the type of beneficiary most likely to be enrolled in consumer-focused plans.

Younger employees tend to opt for plans with higher-upfront costs, since they anticipate having fewer medical needs on average than older employees. But even when comparing patients with the same medical conditions (or lack thereof) by type of health plan, the researchers found significant spending differences. In 2016, the average high-deductible enrollee with no reported medical condition spent around 90 percent of what healthy low-deductible enrollees spent. High-deductible diabetics (type 2) also spent about 90 percent of their low-deductible counterparts. For COPD patients (the most serious disease studied by the researchers) savings were lower but still significant; the high-deductible enrollees spent around 6 percent less than those with low-deductible plans.

These findings are significant, but tricky to interpret. Optimistically, patients are economizing by eliminating low-or-no value care and prioritizing the types of tests and services that really matter. That’s hardly a stretch, since according to a 2010 Institute of Medicine report, waste accounts for nearly a third of U.S. healthcare spending. Most people can probably recall themselves, a loved one, or a friend getting an EKG for a headache or opting for a CT or MRI scan for lower-back pain even in the absence of other symptoms.

Or perhaps, more alarmingly, many high-deductible enrollees are “saving money” by forgoing services and procedures that they actually need. Overall, the limited evidence at hand seems to suggest that this doesn’t happen. A 2017 study published in the Journal of the American Medical Association followed nearly 25,000 diabetic patients switching plans, and found that switching from low-to-high deductible plans did not significantly impact high-priority primary care visits and disease monitoring tests. But the authors did note some modest impacts on the very poorest members of the study population.

Even if switching to high-deductible plans can slow down medical costs without hampering care, it’s important to make sure the poorest enrollees don’t suffer. To this end, taking Medicaid dollars (which don’t do much to help people) and converting them into health savings account (HSA) payments for low-income individuals can go a long way toward providing financial security. The federal government can use these payments to make sure vulnerable beneficiaries have enough HSA funds to cover high expenses that fall just short of meeting the deductible (the point where insurers start kicking in).

Facilitating the rise of high-deductible plans would keep care quality high, while finally bending down the cost-curve. And that’s something that not only scholars, but also consumers and taxpayers, can get behind.

Ross Marchand is a Catalyst Policy Fellow and the director of policy for the Taxpayers Protection Alliance. He focuses on a range of issues, ranging from health-care reform to internet regulation to Postal Service-related issues. Ross is an alumnus of the Mercatus Center MA Fellowship at George Mason University, where he received his MA in economics in 2016. He has interned for the Texas Public Policy Foundation and the American Legislative Exchange Council, analyzing and blogging on a variety of public policy issues.
Catalyst articles by Ross Marchand