This post was written by guest contributor Bob Hertz.
Health insurance deductibles have been rising for decades. This is true both for individual and group coverage. According to a 2022 policy report:
The amounts of these deductibles have risen dramatically among firms of all sizes: The average deductible for a single coverage plan nearly doubled in the last decade, from $1,025 in 2010 to $2,004 in 2021. In 2021, average deductibles for both individual and family coverage are significantly higher ($2,378 and $4,816, respectively) for plans sponsored by small firms with 50 to 99 employees, compared with those for plans at firms with 100 or more employees ($1,865 and $3,646, respectively).
The premise behind high-deductible health insurance (and health savings accounts; HSAs) is millions of knowledgeable, price-sensitive consumers who have an incentive to forego expensive and questionable healthcare. The theory goes, if people had to pay more for procedures, they would reduce their consumption, providers would be forced to compete based on price, and prices would go down. Corporate employers and their workers would save a lot of money on insurance premiums, thanks to high deductibles; and these savings would be used to fund HSAs.
Proponents hoped employees would save regularly when they were not sick – or employers would save for them. Unfortunately, at least half of the employers who offer high-deductible insurance deposit nothing into employee HSAs and many workers don’t either. Singapore, which mandates health insurance, solves this problem with mandatory deductions into a Medi-Save account.
Patients face barriers when comparing prices and prices have not gone down. Without price transparency and competition consumers are still essentially helpless when it comes to big-ticket medical procedures – and the big-ticket items that drive health spending are dictated by doctors, not patients.
The place where cost-sharing is felt most acutely is when patients enter the hospital, which is where patients have the least discretion. I’m reminded of a Forbes column by John Goodman:
Because I am often called the “Father of Health Savings Accounts” people sometimes assume that I favor high deductible health insurance. I don’t. In fact, I don’t really favor deductibles at all. Deductibles, along with co-insurance payments, are very crude devices that give patients very imperfect incentives.
However, it is not just the patients who sometimes struggle with high deductibles. Medical providers lose money on deductibles when patients cannot pay. For example, the American Medical Association recently published the issue brief, “Mitigating Negative Impacts of High-Deductible Health Plans,” saying:
Financial barriers to care can be exacerbated in the context of High-Deductible Health Plans (HDHPs). HDHPs are insurance plans associated with lower premiums, higher deductibles, and greater cost-sharing requirements as compared with traditional health plans. Lower premiums under HDHPs can be enticing, and enrollment in HDHPs has increased dramatically in recent years. However, the size of HDHP deductibles has also increased dramatically, leading to financial challenges for patients facing increased out-of-pocket (OOP) health care costs.
Consider these statistics from Jacqueline LaPointe’s article in RevCycle Intelligence:
- Patients who owed less than $1,200 for inpatient services had a payment rate of 40.1 percent.
- Patients with balances between $1,201 and $5,000 had a payment rate of 25.5 percent.
- Patients who owed between $5,001 and $7,500 had a payment rate of 10.2 percent.
- Patients incurring a balance between $7,501 and $10,000 had a payment rate of 4.1 percent.
- The payment rate dropped to just 0.9 percent for inpatient accounts with a self-pay balance of more than $10,000.
Most hospitals are not very aggressive on debt collection. Indeed, hospitals often sell their old debts cheaply to collection agencies. A Johns Hopkins study found that between 2018 and 2020, only 28 out of 414 hospitals in Texas sued any patients. Fewer than ten of these hospitals garnished bank accounts and seized patients’ property.
Hospitals told the study’s authors that litigation is used as a last resort, pursued only when the facility believes the patient has an ability to pay, based on their employment status or credit record, and after numerous attempts to contact them have been made.
“We offer charity care, discounts and extremely low, long-term payment plans that are often less than $25 per month,” said one administrator.
High deductibles hurt hospitals, and they have proposed (self-serving) solutions to their bad debt problems. The American Hospital Association has proposed the following:
- Restricting the sale of high-deductible health plans to only those individuals with the demonstrated means to afford the associated cost-sharing.
- Prohibiting the sale of health sharing ministry products and short-term limited duration plans that go longer than 90 days.
- Lowering the maximum out-of-pocket cost-sharing limits.
- Eliminating the use of deductibles and co-insurance, and relying solely on flat co-payments, which are easier for patients to anticipate.
- Removing providers from the collection of cost-sharing altogether –and require that health plans collect directly from their enrollees the cost-sharing payments they impose.
All these proposals would be opposed by insurers, who do not want the hassle of collecting co-payments, and by employers who would face higher premiums. These proposals are unlikely to gain much support. However, It is interesting to see how far hospitals would go.
To read more about hospitals self-pay debt problems see Hospital Collection Rates for Self-Pay-Patient-Accounts.
John Goodman wrote about ideal health insurance, with different cost-sharing for different situations. Services where patients have more discretion should have more cost-sharing (doctors visits) than places where patients have little (i.e. hospitals). See Chapter 24 of Lives at Risk
https://www.ncpathinktank.org/pdfs/livesatrisk/Ch24.pdf
PS – Devon, you are too modest. Your name is also on the title page of my copy.
Bob, this is interesting. I wish you had been able to locate data on how aggressive collection agencies are, after they purchase bad debt from hospitals. Wouldn’t it be reasonable to assume they believe they can collect more overall from the patients whose debts they purchased? That might entail some aggressive collection practices.
You might be interested in this, if you have not already read it.
https://www.rand.org/pubs/research_briefs/RB9174.html
It’s a 25-year retrospective on the RAND Corp Health Insurance Experiment first published in 1982. The retrospective was released in 2006 by the HIE’s original study authors. It supports many of the points you raise in your article.
The retrospective also notes unsettling HIE findings about medical quality that persist after lo! these many years.
Devon and Bob, you 2 are smarter than most and you 2 are pitiful. Bob writing this fruitcake story is similiar to Biden calling Trump’s Plan JUNK and a SCAM! Bob, like Biden wants to ELIMINATE low-cost high-quality Short-Term-Medical (STM). Let me present the real facts. let’s use a 30-year-old woman in the 43004 Columbus, OH zip code. READY? On Obamacare her lowest price for Blue Cross Anthem Bronze Pathway X HMO 9100, with a $9,100 deductible for $3,323/year. This HMO pays NOTHING if she goes out of network trying survive. And of course this includes no dental.
Next let’s compare the City of Columbus, Ohio employer-based plan, Blue Cross’s CASH COW! The cost for COBRA is $13,002/year. Out-of-pocket is $3,000 in network and $6,400 out-of-network. The overpriced Blue Cross plan doesn’t include dental. This rediculous employer-based plan tells you all you need to know about how employer-based insurance is dead. That’s OK, Americans deserve personable protable insurance.
The Best option is Trump’s low-cost PPO for $1,716/year which includes Step-Up-Dental. The 1st year dental pays to $2,000 and the 2nd year it rises to $2,500 and then 3rd and later it pays $3,000 per year. Deductible is waived with Urgent Care facilities. TriMed is included wich drops accident deductibles to $250 the 100% coverage. Also, she gets $30,000 with a heart attack, cancer or stroke!
Trust me, Obamacare or the City of Columbus on that rediculously expensive employer-based plan is not handing out checks for $30K to bald-headed women. Of course the AMA, AHIP and the Blue Cross Association like the most expensive plan, Employer-based insurance. Common sense would scream get the low-cost high-quality Trump Plan PPO.
Ron, I am still curious about the new plan.
I’ve said this before but I like STM plans. I bought one for four years when the ACA came in and I could find nothing affordable.
But the one you describe here seems too good to be true.
Your premium is $143 a month which includes dental. Assuming dental is $40 a month, that means $103 a month for the health insurance.
That feels like a critical illness plan. If I am wrong, please show me the carrier website. Thank you.
“Also, she gets $30,000 with a heart attack, cancer or stroke!”
Do tell. But let’s not get overly excited over a $30,000 benefit for those conditions.
The average cost for a normal-delivery is about $20,000, more if Caesarian, and still more if either is complicated. These are national averages, lower in some areas – exceeded in others. Maternity care is one of the most frequent types of service.
The cost of treating a stroke can easily exceed $30,000.
Cost of treatment for a heart attack or cancer is usually a lot more. $200,000 is not all that unusual, and could be even more depending on the type of heart attack or cancer, severity, follow up care required, and other factors.
Purchase of a limited-benefit plan involves obvious risk for the buyer. Even otherwise healthy people can suffer a debilitating medical event, have a serious accident, or be given an unwelcome diagnosis. It’s not for everybody and should not be marketed as though it were.
Regarding John’s question on how aggressive are collection agencies….
here are comments from the American Collection Association, a trade group I assume:
The American Collection Association reports that about 15% of Hospital debt is collected and about 22% of Non-Hospital Medical debt is collected. In some cases collections are as low as 5%. A glance of some of the statistics on hospital payments sheds some light on why these figures are so low.
To begin, at least 30 million people had no insurance at all for the entire year of the study. Additional people had occasional coverage. Most of these people do not have the incomes to handle the high costs associated with medical services.In addition, they generally have no assets and very few prospects for a brighter future. Very few of these bills will get paid.
Even more people, 75 million reported problems paying their medical bills or were paying off medical debt, These people often have insurance but are left with large bills uncovered by their insurance that stress their finances to the breaking point. Medical bills will not be paid before food, clothing, housing and transportation.
Seventy-eight percent of workers reported an annual deductible in their Health Care Insurance. While this helps lower insurance costs, most workers live week to week and have no emergency funds available to handle these deductibles.
In addition, many Medical bills are still not submitted to Insurers electronically. The United States Medical Community is lagging far behind most other first World countries with large numbers of paper submissions. This slows the process and causes additional errors in the codes needed to obtain payments.
Hospitals in particular and all medical practices in general do not verify patient information. This leads to a large number of incorrect or misleading information on many patients. The percentage of patients who cannot be located is extremely high compared to other sources of bills.
Patients often get many bills from a single Hospital visit and simply do not have the ability to pay them all at once. Sometimes they get new bills before the old bills are paid making their problem untenable.
Once the bills are in the hands of a Debt Collection Agency these people are hard to locate and very hard to call. Most phones provide the incoming phone number and people who have a lot of bills tend to screen their calls to avoid unpleasant demands for money they don’t have.
“hard to locate and very hard to call”
Even so, collection agencies exist, and apparently recover enough to stay in business. I have to assume they are very good at finding the people owing those debts and very good at extracting money from them, even if less than 100% of the full amount owed.
It’s also discouraging to read, after all the political and financial angst leading up to the passage of Obamacare in 2010 and now, after 13 years, there are still 30 million Americans who go at least a year without insurance and millions more who are unable to pay their bills even with insurance. We were promised a lot better than that.
Nancy Pelosi famously said “We have to pass this bill you can find out what is in it”. We seem to have found out. Even though I doubted Obamacare was the solution to the problem of high medical care costs, I’m still disappointed
I’ve always understood that hospitals often sell patient debt for pennies on the dollar. Anything a debt collector can get out of patients is mostly profit. The nonprofit organization RIP Medical Debt buys and forgives medical debt for something like 1% of face value. I’ve often wondered if there isn’t a business model in which a firm could buy debt for, say, 2% and sell the notes back to the patients for 5%.
John, the Commonwealth Fund did a study of people without health insurance. Here are some highlights:
1. 11% were very poor, but lived in a state that has not expanded Medicaid to childless adults.
2. 25% were illegal immigrants, so do not qualify for any aid
3. 15% were not poor, but did not think they needed insurance
4. 37% did not think that the ACA exchanges would help them, and not looked into it.
My personal experience when I was assisting people on the exchanges was that some people just hate paying insurance premiums. The ACA could get premiums down to $10 a month and some people would not sign up. Beats me, frankly.
“I’ve often wondered if there isn’t a business model in which a firm could buy debt for, say, 2% and sell the notes back to the patients for 5%.”
That’s plausible. There’s also horror stories about bullying and threatening behaviors of medical debt collection agencies. It’s a grimy business.
Bob:
Thanks for linking to my Forbes article. As I pointed out there, the problem is not the idea of a deductible. The problem is the perverse incentives created by unwise legislation. The reason why employers make routine check ups free, but have high deductibles for hospital care is that they want to attract people who are not planning to enter a hospital and who need little care beyond a routine check up.
“The problem is the perverse incentives created by unwise legislation.”
Agree. And I would include employers who put perverse incentives into their medical insurance plans. It’s not just insurers and legislators.
Perhaps – at least sometimes – perverse outcomes are intended. Countries having a national medical insurance tend to allow easy access to primary at zero or virtually zero cost. But at the same time put obstacles in the way of accessing specialty care, e.g., require referral from primary doc; limit the number of specialists thus growing lengthy queues. The majority, who only need primary care, are more likely pleased with their coverage while the relative few who need specialty care are dissatisfied. It’s a sort of triage – healthy in this line, unhealthy in that line. Arguably, this tactic promotes good health by facilitating regular primary care. It also acts as a restraint on overall costs which I suspect is the underlying motive.
And the national plan remains politically popular, because the majority are pleased. They receive what they need at no apparent cost to them. What’s not to like?
Canada and UK come to mind although NHS’ problems seem rapidly worsening.
The barriers to specialty care in Canada and the UK are real and very painful. In my reading, the real cause is a lack of medical specialists.
It is not some clever strategy to keep the healthy persons satisfied while controlling national costs. The authorities are not as devious as Jphn Fembup and John Goodman imply here.
Canada for example has strict low quotas on how many oncologists, neurologists, brain surgeons, et al., can enter medical school each year. Britain may be the same way.
Salaries for the specialists already in the field are also controlled.
This is deeply stupid, not as clever as you implied.
I asked a Canadian why something as useful as an MRI would take weeks to months depending on where you lived. I was told it wasn’t the machines, it was a lack of radiologists.