By Douglas Barthold, Anirban Basu
Health Affairs Blog, June 18, 2020
High-deductible health plans (HDHPs) covered more than 30 percent of enrollees in employer-sponsored plans in the United States in 2019, up from 4 percent in 2006.
The growth of HDHPs is driven by the pursuit of reduced health care spending and premiums for both employees and employers through channeling elements of consumerism and managed care. Often, HDHPs are offered along with a savings option (health savings account or health reimbursement arrangement) in a consumer-directed health plan.
Recently, however, there have been concerns about the out-of-pocket cost burdens imposed on patients by HDHPs and other plans.
It is becoming increasingly clear that HDHPs’ indiscriminate reductions in care usage may not be the best way to contain health care costs. In this post, we suggest that combining the principles of HDHPs and value-based insurance design (VBID), by offering deductible exemptions for high-value services, could provide nuanced incentives with potential to preserve access to the most important services while reducing use of only more wasteful care.
Why Did HDHPs Fail To Deliver Their Intended Consequences?
The intended premise of HDHPs is that beneficiaries facing the full costs of health care services during the deductible phase will engage in price shopping and subsequently choose care commensurate with expected benefits of that care. The hope is that the combination of lower prices and a different mix of services could increase the value of health care used while also reducing costs. Unfortunately, evaluations of HDHPs suggest that consumers neither price shop nor can they discriminate between high- and low-value care when facing high deductibles; accordingly, they reduce use of both essential and inessential services. Not only is this behavior likely to lead to worse health for beneficiaries, but short-term savings for both the beneficiary and the insurer may be offset by increased long-term spending associated with preventable adverse health events. The lack of the hoped-for response to HDHPs (price shopping and reduction in unnecessary care only) may stem from a lack of price transparency, inability to pay for essential care during the deductible phase, or inadequate information about the value of alternate health care services and technologies.
Tying-In Value Conversations Within HDHPs
Health services can be underused and overused when there are differential health-related returns across services, but patients are unaware of the differences. VBIDs have been used by insurers as a mechanism to address this information problem, by signaling the value of alternative health care technologies to consumers through variable cost sharing.
To date, most applications of VBID have focused on applying such designs to copays but not to deductibles. Consequently, results of such applications show the promise of VBID, but to a limited scale, owing to the relative inelasticity of demand for care related to small copay variation. Tying value-based cost sharing within deductibles could generate a bigger “nudge” to align use with value.
Value-Based High-Deductible Plans
We suggest that value-based high-deductible plans (VHDP), which combine the principles of HDHPs and VBID, and have been suggested as “a natural evolution of health plans,” could provide a robust alternative in insurance markets and achieve the goals of both low costs and high value of health care delivery. Our enthusiasm for such designs stems from the dispersion of price-elasticities observed when a value-based system was implemented on copayments. We expect such dispersion can be expanded substantially when VBID is applied to develop VHDPs. Specifically, VHDPs would nudge consumers toward high-value technologies (for example, preventive medications) by exempting their costs from the deductibles, while also providing consumers with transparency on the full costs of low-value services (for example, MRI for back pain or headache), and disincentivizing their use. This would generate a more elastic demand for low-value services, which in turn could move the markets for insured health care services toward more efficient outcomes.
In health care, where we know that both quality and value are at least partially unobservable to the patient, efficient outcomes are typically not attainable, especially when cost sharing indiscriminately alters prices. A VHDP would provide nuanced cost sharing to influence behavior in a manner similar to prices in traditional markets, therefore resolving information asymmetries for low-value services, reducing distortions, and increasing social welfare.
Challenges To Adoption Of Value-Based HDHPs
While value-based pricing improves beneficiaries’ ability to observe value, and therefore reduces the information asymmetries inherent in health care markets, the definition of “value” is an open question. Value could be included in decisions about which services should be exempt from the deductible. The decision of which elements to consider in this decision will depend on the stakeholders and perspectives (for example, payer, health system, employer, societal).
A potential downside of VHDPs is plan complexity, but improved communication (perhaps through health plan stewards) could address this limitation. It would be relatively straightforward to incorporate the cost-sharing design of VHDPs to a value-based tiering system, now widely used in cost sharing.
Qualitative studies of VBID have identified additional barriers to VBID implementation. For example, patients are skeptical of value-based tradeoffs, do not necessarily trust the information provided by their plan, and may resist changes in care delivery. Payers tend to be skeptical of the clinical significance of adherence improvements from VBID and have expressed concern over low return on investment and administrative and information technology hurdles. Finally, providers are concerned about changes to patient behavior that puts their practice at financial risk.
These concerns are important, but potentially addressable with education and carefully planned implementation, to allow VHDPs to strike a nuanced balance between reducing moral hazard consumption of care and adequate risk protection. Such a balance is critical to controlling health spending while maintaining access to the highest-value services and reducing financial uncertainty.
By Don McCanne, M.D.
Who should be denied health care? People who do not have enough money to pay for it? Apparently we don’t believe that since we have set up systems to try to ensure that health care is available to essentially everyone. We place funds in health insurance risk pools to be sure that funds are there to pay for care when needed. For those who do not have insurance and are too poor to buy it, we set up programs such as Medicaid and CHIP. We help fund community health centers that provide reduced-cost or free care for the needy. We set up programs to cover special groups such as seniors (Medicare), or veterans (VA health care). We require Emergency Departments to accept critical patients who are unable to pay for care (though we reserve the right to ruin their credit if they don’t pay).
Though we have set up these systems, the fragmented and dysfunctional nature of them leaves tens of millions without insurance or with inadequate insurance that results in financial hardship when health care is required. Although our national health expenditures are now $4 trillion, the system is not working for too many individuals and families. With a properly designed financing system, $4 trillion is enough to pay for health care for everyone. The single payer model of an improved Medicare would work just fine. The financing of the system is an issue entirely separate from the delivery of health care. Under single payer, when you need health care, you get it. It’s that simple.
As far as financing a single payer system is concerned, it is still important to pool risk. All funds are paid into a single universal risk pool that covers everyone. Funds are paid into the pool based on ability to pay. Lower income individuals pay less and those with higher incomes pay more. The most equitable way to do this is through progressive taxes. Under this system there is a transfer from the healthy to the sick and from the wealthy to the poor. Most on average will pay less than they do under our current dysfunctional financing system though the wealthy will pay more although still an amount that will be easily affordable for them. So, again, the system functions best when the delivery of health care is totally separated from its financing.
We have a problem. The current system serves some sectors of the medical-industrial complex very well, especially the expensive, administratively-burdensome private insurance industry. Although we waste tremendous resources keeping this industry in play, it has not been able to adequately fulfill the important function of transferring funds from the healthy to the sick and from the wealthy to the poor. They have phased in various gimmicks under the umbrella of consumer-directed health care. They have introduced the exchange of money into the actual health care delivery setting, conflating to some extent the delivery and the financing of health care.
By requiring copayments, coinsurance, and the much larger deductibles, they are placing the patient in the role of a shopper in the health care marketplace. This has been disastrous. The out-of-pocket cost-sharing has made health care unaffordable for far too many of us, and it does so by erecting financial barriers directly tied to the delivery of health care services. The maldistribution of the $4 trillion that we are spending is creating financial hardships and even bankruptcy for too many of us, not to mention that the administrative complexity is wasting tremendous financial resources that should be going to health care instead.
Recognition of these problems certainly is not new. In fact, in response the industry has gone out of its way to manipulate the consumer-directed policies to continue to serve their own industry well, but at a dear cost to the patients.
The extremes to which they go by adding more administrative complexity is demonstrated in today’s article by Barthold and Basu. They explain how the current system is not working well, but their solution is that they want more of it. They report the effort to improve shopper selection by lowering copayments for higher-valued services while increasing copayments for those services of lesser value. Acknowledging that the very modest changes in out-of-pocket spending have not been enough to improve health shoppers’ behavior, they suggest the innovation of using the much larger deductible to make a greater difference in the intensity of the shoppers’ experiences so they will more likely choose higher value care, at least in theory.
The deficiencies should be obvious to anyone who has studied health policy. How do you determine which care is of higher value? Since all patients are different, how do you determine whether that higher value applies to a specific patient? What other choices are there out in the health care marketplace, and how do you find out about them? These issues can be quite complex, as the authors recognize, so their solution is to consider adding more personnel – health plan stewards – to assist the patient in decisions on how they should spend the deductible. More administrative waste and grief!
The obsession with the ideological preference for consumer-directed health care has served the insurance industry well, and has kept the policy community busy, but it has done so at a great disservice to patients, not to mention the burden that it has placed on the health care delivery system. The entire concept, along with the insurers, needs to be dumped. We should take money out of the health care delivery transaction, and simply provide health care whenever and wherever it is needed. The administrative cost of collecting equitable, progressive taxes to pay for the system is a minuscule fraction of the administrative waste that we would recover by changing to single payer Medicare for All.
Imagine prepaid health care where the entire health care system is prepaid for all of us. Can hardly wait.
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