April 1, 2005
Michelle M. Doty, Alice Ho, Karen Davis
How High Is Too High? Implications of High-Deductible Health Plans, Karen Davis, Ph.D., Michelle M. Doty, Ph.D., and Alice Ho, The Commonwealth Fund, April 2005
Many market advocates have turned to high-deductible health insurance plans (HDHPs) as a strategy for making patients more cost-conscious. In 2003, the move toward HDHPs was given impetus by a provision in the Medicare Modernization Act granting tax preferences to funds set aside to pay for out-of-pocket medical expenses—conditional on enrollment in a plan having a minimum deductible of $1,000 for individuals and $2,000 for families. So while only 8 percent of privately insured adults under age 65 (7 million people) have deductibles of $1,000 or more, this number could well grow in future years.
High-deductible plans can undermine the two basic purposes of health insurance: to reduce financial barriers to needed care and to protect against financial hardship. This report, based on the Commonwealth Fund Biennial Survey of Health Insurance (2003), finds that:
- Adults with a high deductible have significantly greater difficulty accessing care due to cost compared to those with a lower or no deductible. Thirty-eight percent of adults with deductibles of $1,000 or more reported at least one of four cost-related access problems: not filling a prescription, not getting needed specialist care, skipping a recommended test or follow-up, or having a medical problem but not visiting a doctor or clinic. By contrast, 21 percent of adults with no deductible report one of these four access problems.
- High-deductible plans would be particularly problematic for lower-income Americans: a predicted 44 percent of people with incomes below $35,000 and with a deductible of $500 or more would experience cost-related access problems, compared with 21 percent of higher-income, insured adults with deductibles under $500.
- People who are sick would have a more difficult time obtaining needed care under an HDHP: among adults with a deductible of $500 who rate their health as fair or poor, or who have a chronic condition or disability, a predicted 45 percent would have a cost-related access problem, versus 19 percent of healthier adults with a deductible under $500.
- Medical bill problems are more common among those with higher deductibles. Over half (54%) of those with a deductible of $1,000 or more reported difficulties paying medical bills or are paying off accumulated medical debt, compared with just 24 percent of privately insured adults with no deductible.
- Medical bill problems and medical debt are greater among lower-income adults with higher deductibles. An estimated 55 percent of those with incomes under $35,000 and deductibles of $500 or more would experience medical bill problems or accrue medical debt, compared with 27 percent of adults with higher income and deductibles under $500.
- For insured adults who are ill, having higher deductibles would mean they would be more likely to have difficulties paying medical bills or accumulate medical debt: 59 percent of sick adults with deductibles of $500 or more would experience medical bill or debt problems, compared with just 24 percent of comparatively healthy adults with a lower deductible.
The major purported advantages of HDHPs are that they will a) lower health care costs by causing patients to be more cost-conscious in their health care decisions, and b) make health insurance premiums more affordable for the uninsured. The authors find, however, that such plans are unlikely to have a substantial effect on either costs or coverage.
- Only 4 percent of health care expenses are accounted for by households with spending below the minimum deductibles required for participation in a health savings account (HSA). Altering the financial incentives for patients with health care spending under the deductible is unlikely to affect health care outlays significantly.
- The major effect of high deductibles is not lower total health care costs, but rather a one-time shift in spending from insurance premiums to patient out-of-pocket outlays. In future years, premiums are likely to continue to rise.
- High-deductible plans in the individual health insurance market are unlikely to be affordable for those Americans who are currently uninsured. Two–thirds of the uninsured have incomes that are less than twice the federal poverty level. Premiums for HDHPs equal about 6 percent of income for a 25-year-old man living at twice the poverty level and about 20 percent of income for a 60-year-old woman at that same income level. Researchers have found that few low-income individuals can afford to purchase coverage if premiums exceed 5 percent of income.
- Low-income individuals and families would be at risk for spending substantial sums of income out-of-pocket. The ceiling on out-of-pocket expenses constitutes 26 percent of income for single individuals and families at twice the federal poverty level.
Little advantage can be gained from providing people with incentives to choose an HDHP. Such incentives are essentially a tax break for higher-income individuals and, moreover, drain the federal treasury of $6 billion to $16 billion over 10 years. Further tax incentives proposed by the President in the fiscal year 2006 budget would provide an additional $48 billion over 10 years in subsidies to small businesses and individuals for HDHP/HSAs—funds that might be better spent on covering the uninsured through public programs or helping states maintain or expand coverage through Medicaid or other state insurance programs.
If HSAs continue to be conditional on purchase of an HDHP, several policy changes might be considered to better target incentives and ensure access to care:
- Permit employers to lower deductibles for lower-wage workers.
- Exempt primary care and preventive services from the deductible.
- Guarantee choice of a comprehensive health plan to workers covered under employer plans.
- Permit greater flexibility in benefit design.
- Set an income ceiling on eligibility for HSAs.
High-deductible plans can deter patients from seeking needed care and add to financial burdens, particularly on low-income families and those with chronic illnesses. The modifications suggested here—particularly those intended to protect lower-wage adults and ensure access to early preventive and primary care—would help mitigate the most potentially harmful effects of these plans.