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.