• Bloomberg View: Conservatives See the Light on High Deductibles

    I’ve been somewhat baffled by the conservative about-face on the value of high deductibles. I talk about this in detail in my latest column at Bloomberg view.

    Go read!

    @aaronecarroll

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    • I think you kind of gloss over a key point , that these high deductible polices are paired with high premiums in the exchange plans.

      Another key point, and one that I freely concede many Republicans gloss over or fail to explain/understand, is that high deductible plans work for people who have sufficient funds to pay for relatively low-cost care. That’s actually most people, or at least would be in a more free-market system where lower premiums lead to either HSA account balances or increased take-home pay that adds to discretionary spending power. But it’s not everyone, and a reasonable program to subsidize HSA contributions for the poor would be an appropriate way to bridge this issue.

      • HSAs matter only to people who can use the tax deduction. They favor the middle to upper class.

        Also, “high premiums”? As I showed in previous posts, the premiums on the exchange are far below the national average for employer provided HSAs.

        • Perhaps I should have referred instead to ‘HSA-like accounts.’ For instance, Indiana has the ‘Healthy Indiana’ program which provides ‘POWER’ accounts to people of modest incomes: http://www.forbes.com/sites/aroy/2011/11/11/obama-administration-denies-waiver-for-indianas-popular-medicaid-reform/

          That said, what you say is still incorrect. HSAs matter to anyone who needs to pay for health care, but they might matter a bit more to people who can take advantage of the tax benefits.

          And I assume you mean premiums are lower on the exchange than they are for employer-provided HSA-qualified insurance? I’d argue that’s the wrong comparison, with the correct comparison being to pre-Obamacare HSA-eligible plans available on the individual market. Those are uniformly higher, at least in my observation.

          • 1) HIP has its own issues, which I believe I’ve covered before.
            2) Why do HSAs matter to anyone who doesn’t need the tax-deduction? They can invest in regular savings accounts?
            3) I’m not arguing that community rated plans will be cheaper than those SOME people could get in the individual market. That’s a community rating, guaranteed issue differentiation, though. Not an HDHP versus comprehensive insurance differentiation.

      • What high premiums? The high deductibles are not paired with high premiums. While each individual will have variance, that’s not something that’s established at all.

        I’ve been keeping tabs on my own offered rates and several of my coworkers, young and old, sickly and not, and the average numbers are:

        Bronze plans: around 6k$ deductible, 100$/mo premium, max OOP 8k$
        Gold plans : around 1k $ deductible, 370$/mo premium, max OOP 2k$

        Even using individual numbers, I’m not seeing any high premium high deductibles, even for the oldest sickest guy I work with.

        • I live in California, in one of the most expensive areas for health care in the US. I checked the reference plan, the second-lowest Silver, for two people in their 50s with a young adult child. In my area, the cost is over $16,000 a year, with a $5200/person deductible.

          I call that a high premium, and a high deductible. Californians in the 50s and 60s are seeing high premiums, and high deductibles. If someone in their 50s already had health insurance, they were healthy, and their premiums were a lot less than that, with much lower deductibles. I’m not in the individual insurance market, but friends are, and they are seeing huge premium jumps from their previous healthy-person rates.

        • Bob: You must not be looking very hard, or must not be understanding what you’re seeing. For starters, assuming we’re talking about an individual plan, the max OOP is $6,350.

          And I’d love to see some evidence for those rate’s you’re quoting, particularly the old people getting Bronze plans for $100. Because in all the data I’ve looked at, I can tell you that there’s nothing remotely close to what you’re claiming.

    • I would be much more willing to accept this kind of abrupt about-face if the people making the move owned up to the change and spelled out explicitly why they were wrong before and are correct now. But as you stated in your article, it’s basically impossible to argue the Republicans made this change out of principle instead of being another politically expedient argument to make against ObamaCare.

    • I’ve long suspected that high deductibles don’t make actuarial sense. When half of the population spends under $300/year and the top 5% spend account for half of all health care spending, the move from a $1,000 deductible to a $5,000 or $10,000 deductible doesn’t save that much in premiums. It certainly didn’t for me, compared to the increase in risk.

      Sean’s comment above suggests that this is true for more than just me.

      I would be interested in knowing whether anyone has studied the actuarial difference.

      • This argument would only make sense if the people in the top 5%, and the people who spend less than $300 were the same individuals year-in and year-out, A significant percentage of the top 5%of the privately insured population – I’d guess the vast majority -are people who are healthy, but get injured in an accident, have a heart attack, etc – and then return to a baseline where their medical expenditures revert to the mean.

        It would make much more sense to identify the people with significant, recurring medical expenses who lack the means to cover those expenses themselves, and give them enough money to cover their expenses, and allow the remainder of the population to reduce their total medical spending by combining high deductible policies with medical savings accounts with balances that are transferable between family members, and supplemented with income-indexed cash transfers.

        • From this AHQR report (http://meps.ahrq.gov/mepsweb/data_files/publications/st392/stat392.shtml) it looks as though 34% of those in the top 5 percent of health expenditures in 2009 remained there in 2010 and almost 40% of those in the top 10 remained from 2009 to 2010.

          I think this is a large enough number to prompt action. In addition to considering your suggestion to provide assistance to cover these expenses I think efforts to identify persistent top 5 and 10 percenters and attempt to identify ways to reduce their expenditures is worthwhile.

        • No, my point was about the cost to the insurance company of providing that coverage, which determines the price to the consumer. If 5% of people spend 50% of the cost and 50% of the people spend under $300, then the COST of providing coverage is more about covering the risk of landing in the 5% of the seriously ill, than in covering the occasional broken limb or case of pneumonia.

          The idea of high deductible insurance is that you put the difference between a HD plan and a LD plan in an HSA and use that to cover your expenses up to the deductible. But of the cost differential between HD and LD insurance isn’t that great, it will take a long time to accumulate significant savings and from a consumer perspective, HD would be a poor investment. Which makes it poor public policy.

          So, this was my question, which no one seems to address: what are the actuarial cost savings of high deductible insurance? A graph would be the best thing, since it would show any sweet point.

    • 1. Haven’t seen your commentary on HIP (shame on me, I know!), but my point was just that my use of the term ‘HSA’ wasn’t meant to exclusively cover the tax-favored accounts set up under the 2003 bill authorizing them.

      2. Point taken, although I’d argue two points, first that if something like HIP were set up, they’d presumably be restricted to health care, and second, that having funds set aside specifically for health care costs can have a benefit all of its own, so it’s not “Oh no, a $900 ER bill, how am I going to pay for it” but “Oh, a $900 ER bill, good thing I’ve got money set aside for that.”

      3. Well, if by SOME you mean MOST I’d agree. Which was kind of my point – most people could get a HDHP prior to the ACA for much less than what they can today get a HDHP.

    • Of course, well people don’t need insurance. Sure, a well person may derive emotional comfort in having the insurance, but a placebo would provide the same benefit. It’s only the injured or sick who need insurance. The difficulty with discussing the issue of insurance (no deductibles, high deductibles, comprehensive insurance, crappy insurance, whatever) is that the focus is either on someone who doesn’t need insurance because she is well or on someone who does because she is injured or sick, and those who object to comprehensive insurance tend to focus on those in the former category, confirming what has long been observed as a human flaw: the inability to assess personal risk. I’m reminded of Ralph Nader’s oft-given speech in the 1960s when promoting his book about unsafe automobiles, during which he would ask those in attendance who had a family member or close friend killed or seriously injured in an auto accident to raise their hands and everybody would raise their hands. Ask any large group how many have family members or a close friend who suffers a chronic illness to raise their hands and everybody will raise their hands. Chronic illness is the source of the health care spending crisis and most health care-related bankruptcies, yet most people are ignorant of the risk. I don’t believe Ralph Nader’s speech persuaded many not to ride in automobiles, nor do I believe Dr. Carroll will persuade many opponents of universal comprehensive insurance that they have a significant risk of suffering a chronic illness for which only comprehensive insurance will provide the necessary coverage to avoid financial calamity. My advice? Stay out of automobiles.

    • -The advantage of high-deductibles was that you could significantly reduce your annual medical spending (health-insurance premiums + out of pocket spending) with a high-deductible plan. Often, the differences in the premium-cost between a comprehensive plan and a high-deductible plan was significant enough that you could save the difference between the two and have enough savings set aside to cover (or more than cover) your entire deductible in 12-18 months.

      When you combine high-deductibles with dramatically higher premiums* you get the worst of both worlds = high monthly, and high out of pocket expenses.

      Having said that, high-deductibles will still have their intended effect – increasing price-sensitivity and price transparency, even in the ACA significantly diminishes or eliminates their ability to shield consumers from high-premiums, as well as their ability to plow the savings they’d realize by doing so into a savings account, or use the money for any of the many worthwhile uses that one can find for money not spent on premiums, such as paying down student loan debt, saving for a downpayment on a house, saving for retirement, etc, etc, etc.

      Beyond that – the high-premium/high-deductible/restricted-network/etc model brought on by the adoption of the ACA are also good for a healthy dose of shadenfreude…
      http://www.nytimes.com/2013/12/14/nyregion/with-affordable-care-act-canceled-policies-for-new-york-professionals.html?_r=0

      *http://b-i.forbesimg.com/theapothecary/files/2013/11/Rate-map-3-27-40-67.png

    • @Aaron I am disappointed with your post on bloomberg. It is pretty snarky. Fortunately for you Blomberg has lower standards than TheIncidentalEcononomist.com. Heh, heh! The last thing the health care debate needs is for someone to re-invigorate the political aspect of this health care debate. Been there, done that, got the T-shirt to prove it! Lord knows that we have had too much politics and not enough policy in this debate. It is is as if the only important people in the room are politicians? Are we really surprised with the result? In My Humble Opinion it is imperative that we need to de-emphasize the political aspect so we can may some progress on the policy side. It is time to draw a line in the sand. I realize that I am the last Mohican in this quest but there is a less snarky approach. If you are happy that the Affordable Care Act and the stupid is as stupid does philosophy then go ahead and aggravate your enemies. Good luck with that! Just remember the other side can wait to 2014, 2016 or whatever while you flop around like a fish out of water! A man must know his limitations! On the other hand maybe if we quiet our egos for a moment, maybe we can help those folks with chronic conditions have a little less grief in 2014. It is the only reason I comment on this blog.

      @bob I am fascinated by your comment and would like to know more. Unlike Austin who thinks that ANECDOTAL INFORMATION IS IRRELEVANT, I find it interesting. If you follow the podcast then it is a very Planet Money viewpoint. People=Economy It is hard to discuss one without discussing the other. Like you I have looked around the office and tried to understand how the Affordable Care Act will affect different people. The guy in the office next to mine should benefit since he has a pre-existing condition(diabetes) and has two insurance plans, one for him and another for his family. It does not make sense. Not more than 20 feet away is a couple in the customer service pool who will likely be losers since their combined income is likely to exceed $62,400 and they will miss out on the subsidy. Technically I should be blessed with this arbitrary subsidy although my preference is to stick with my existing insurance plan. Within twenty feet of me I can find people who are arbitrarily blessed or screwed for no rhyme or reason. How is this a health care reform we can live with?

      @JayB Yes, unlike Aaron I have gone through calculations that I think that every grocery store clerk or Starbuck barista has gone through. They are our new middle class. Although we may not have a doctor after our name, we have to look at the deductible, insurance premium, and out of pocket costs at the same time. Unfortunately it is not a moot point between Bronze and Silver plans. From a strictly financial viewpoint and assuming that I like the narrow network and our family continues to be healthy, the HMO plan of the lowest cost Bronze plan is preferable to the Silver plan. I am uncomfortable saying his out loud but the nasty secret is that both of these plans are inferior to my 2013 plan. I call them as I see them. So much for health care reform. Maybe we will do better in 2015. What I really do not understand, is how the Affordable Care Act is supposed to succeed when it is going out of its way to make so many losers? Is this really the strategy or did we stumble into this strategy? Neither Social Security or Medicare Part D followed this strategy. How is this supposed to work?

      • @billhuber, When the Starbucks barista and the grocery store clerk look at their options on the exchange, carefully, as you describe, they will see that their Silver is far better than their Bronze. The Bronze has cheaper premiums, but the Silver premiums will be subsidized too, and also, the Silver deductible is subsidized for them, and the Silver co-pays, co-insurance and out-of-pocket max are subsidized. They are not facing the big deductibles unsubsidized people are facing.

    • Do Bob and Cardinal Fang live in the same country? Their estimates of ACA exchange premiums are wildly different. Maybe this is a state by state issue.

      Also see Michael Olenick’s articles in Naked Capitalist, where he analyzes ACA policies and comes to conclusions close to Cardinal Fang. He describes ACA policies as “catastrophic coverage at premium prices.”

      The issue is not whether HSA’s are deductible or not. I think the major issue is how close to age 65 you are.

      For a young person, a high deductible plan used to actually cost $150 a month and the idea of “saving the difference” made sense.

      For a person over 60, the high deductible plan alone might cost $6000 a year, and for a middle class person that leaves very little money for savings.

      The real vice might be age-rated premiums in the first place. The ACA offers precious little relief in that area,

    • Note to billhuber:

      If the current enrollment patterns of the ACA continue unchanged, there will be big and very ugly changes on the exchanges in year 2.

      Many insurers will drop out. If all they get is a few hundred customers in a given state, or even a few thousand, this is expensive and actuarially dangerous for them.

      That in itself is not horrible, but if the remaining insurers are seeing high claims in 2014 due to who has enrolled, they will have to raise their premiums a lot in year 2.

      The persons on subsidies will be protected somewhat if this happens.
      The persons who make too much for subsidies are going to get creamed, and if you think they are mad now, you ain’t seen nothing yet.

      Any insurer who is on the exchange has to combine their claims record on all policies that they issue, both exchange and nonexchange. This could bring a real mass exodus of carriers.

      The ACA is an attempt to use private insurers to create quasi-socialist system. Yet the federal government has weak regulatory powers over the insurers, and has zero power to keep them participating. This could get dangerous.

    • Are you looking at the most current enrollment data? Last week, fifteen thousand people *per day* signed up for private plans on the exchange in California.

      http://acasignups.net/

      Now, in some states with small populations, the number of people in the private insurance market will be small. But the number of people in those private insurance markets was always small, because not many people live there.

    • So how do opponents of very high deductibles propose to get people to:

      1. Put pressure on politicians to remove bad regulation?
      2. Shop for price?
      3. Be willing to travel to get care?
      4. Put pressure on providers to publish meaningful prices?
      5. Forgo negative net benefit care like back surgery?
      6. Choose between a newer safer car which can have a bigger average positive impact on health than equal amounts spent on healthcare?

      I still hold out hope for higher deductible plans. Overall the Rand health insurance experiment showed very, very little benefit to low deductible health insurance.

      NOTE: Extending life and health is not the only object in life.

    • “force some to finance the costs of their care, a financially risky choice.”

      I do not see why it is so much better to prepay for healthcare than it is to pay for it after the fact. Each method has its pluses and minuses.

      And BTW life time deductibles might be the best option because it would allow people to insure only against having above average lifetime health expenses. Insurance is an inefficient way to pay for things. Insurance fraud and overhead are problems.