A relatively new type of health care makes consumers more financially responsible for their medical costs. Is this a good thing?
As traditional health insurance becomes increasingly expensive, politicians, policymakers, and individuals are looking for ways to minimize the financial burden and maximize coverage. While the Democratic candidates favor universal health care, many politicians, mainly on the Republican side of the pulpit, are promoting consumer driven health care plans. These plans offer reduced monthly premiums in exchange for high-deductibles—at least $1,100 for an individual and $2,200 for a family. Often times the deductibles run much higher.
The idea behind these high deductible health plans (HDHP) is that a higher up front cost will make people more cost-conscious, better consumers of health care, and more likely to embrace healthy behavior. Initially, this sounds great. Because I rarely visit the doctor and try to stay healthy, I often feel that my monthly premiums are just money (and quite a bit of it) going down the drain.
However, these plans are not without their caveats. They come with a significant amount of risk, and that risk may be especially high for women. A recent study by Harvard Medical School found that women aged 18–44 spent almost three times as much as men on health care when enrolled in a HDHP—$1,266 versus $463. Because of this, the authors concluded that the high-deductible plans were “discriminatory against women.” For pregnant women, HDHPs may be more costly than traditional health plans. The Kaiser Family Foundation found that high-deductible plans led to higher out-of-pocket costs than more comprehensive health care for a variety of birthing scenarios.
To offset some of this risk, high deductible plans are often coupled with a health savings account (HSA), which both employers and employees can contribute to, or a health reimbursement arrangement (HRA), which only employees can contribute to. All of the contributions are tax exempt. The money put in these accounts is portable, meaning that it’s yours even if you change jobs. Ideally, the money saved on monthly premiums would go into these savings accounts, which would help offset future qualified medical costs and deductibles.
But it is unclear if these accounts work as intended. A December 2006 report by the Commonwealth Club and the Employee Benefit Research Institute found that many people with HDHPs do not contribute to savings accounts because they cannot afford to, so they end up spending larger shares of their incomes on out-of-pocket costs and premiums than do those with more comprehensive coverage. HDHPs usually have an out of pocket (including deductible) maximum of $5,500 for an individual and $11,000 for a family.
Quickly searching online for a HDHP for myself (thirty-year-old female), I found plans with low monthly premiums ($50; about a quarter of what I pay now for employer offered health care) but extremely high deductibles ($5,000). Preventative exams, like a yearly annual doctor visits, are usually covered in these plans, but anything outside of that I would have to first meet my deductible before the insurance coverage kicked in.
And $5000 is no small sum of money, even if I was contributing to an HSA. It might even prevent me from getting needed care. Although a recent report by Harvard Medical School found that people who switched into high deductible plans went to the emergency room 10 percent less than those in traditional plans did, thereby saving themselves and insurance companies money, I wonder if that’s necessarily a good thing. If I knew going to the ER for a cut finger was going to cost me $5000, I might not go. However, if that untreated finger ended up being infected, it might cost me (and ultimately the system) a lot more.
High deductibles plans might be alluring for the wealthy and/or healthy, but are a questionable choice for an entire country. Although Republican candidates like Giuliani, Huckabee, and Romney would offer tax credits to low incomes families in order to pay for health insurance, it still may be unaffordable for many. Those with sick family members may never be able to set aside funds for savings. Furthermore, health insurance companies would still be able to deny coverage to high-risk individuals—those with chronic disease or prior history of illness—as they do now. This makes coverage for the most vulnerable portion of our society unlikely.
If you’re a healthy person who is good at saving, high deductible plans might be of benefit. But if you’re one of the many people with a pre-existing condition or a future condition, without the means to put aside money every month, high-deductible plans don’t seem like a risk worth taking.