High-Deductible Health Plans
Over the past twenty-five years, health care spending growth overall has exceeded gross domestic product (GDP) growth, and total health care costs now account for more than 17 percent of GDP.
What’s the Issue?
A combination of factors—including technology, inefficiency, population health status, and insurance coverage rates—have historically been the major contributors to cost growth. Higher health care costs have translated into higher insurance costs, in both the individual and group markets.
Increasing plan deductibles has emerged as one potential solution to slowing health care cost growth by reducing use. A higher deductible reduces a plan’s monthly premium payment, while increasing the amount consumers are responsible for paying for their care before their insurance pays for benefits. This effectively increases the price consumers face when deciding whether or not to seek care and may in turn reduce medical spending.
High-deductible health plans (HDHPs) are increasing in prevalence in both the group and individual markets. In the group market, rising insurance costs make HDHPs more attractive to employers. Employers now spend an average of $5,179 and $12,591 on health insurance premiums for their employees in individual and family plans, respectively. A recent Henry J. Kaiser Family Foundation survey of employers shows that deductibles have increased 67 percent since 2010. Nearly one-quarter of workers are enrolled in an HDHP, up from 4 percent in 2006. Nearly half of workers are covered by an insurance plan with a general annual deductible of at least $1,000 for individual coverage.
In the individual market, almost 90 percent of enrollees in Affordable Care Act (ACA) Marketplaces are in a plan with a deductible above the amount that qualifies a plan as an HDHP: $1,300 for an individual and $2,600 for a family (not including cost-sharing reductions) in 2015. The increasing number of enrollees in and prevalence of HDHPs raises a number of policy questions.
With an increased health system focus on value, one policy to more specifically target unnecessary care use may be value-based insurance design. Plans using this design incentivize services that have a clinical evidence base and that can improve outcomes and reduce costs. Patients pay less for higher-value treatments and more for lower-value treatments. Value-based insurance design plans are more nuanced than the “blunt instrument” of HDHPs by better aligning deductibles and copayments with the value of health services. While HSA-qualified HDHPs do include high-value preventive services for free, other services are not covered in large part until the deductible is met.
Although more than ten million individuals have purchased Marketplace coverage, there are still ten million eligible people who have not, including seven million who would receive premium assistance. Surveys have indicated that a primary reason for not enrolling remains premium affordability. Some policy makers have proposed the creation of “copper” plans at a lower actuarial value to address this issue. These plans would have sizable deductibles, as they would cover even a smaller percentage of costs than bronze plans, but would also have lower premiums. To meet the health law’s coverage requirements while reducing the proportion of medical expenses insurers pay to 50 percent, a plan would have a deductible of $9,000 per person, according to the Kaiser Family Foundation.
Another impending policy set to take effect in 2018 could have a major impact on deductibles in the employer-insurance market. The so-called Cadillac Tax is an excise tax of 40 percent on employer-sponsored plans valued at more than $10,200 for individual coverage and $27,500 for family coverage. Research indicates that employers may shift costs on to employees through deductibles as one way to keep plans below the level of taxation. This could further increase the share of employees enrolled in plans with high deductibles.
Initial modeling indicates that 16 percent of employers offering health benefits would have at least one health plan that would exceed the $10,200 individual coverage threshold in 2018, the first year that plans are subject to the tax. The percentage would increase to 22 percent in 2023 and to 36 percent in 2028. As employer-sponsored insurance remains the source of insurance for most individuals, this potential cost shifting could subject a large number of consumers to high deductibles.
Health care costs have slowed in recent years but are growing once again. Forecasting predicts that health spending will continue to grow faster than the GDP, at a rate of 5.8 percent from 2014 to 2024, and will rise to 19.6 percent of the GDP by 2024. As health care spending climbs, the prevalence of high-deductible plans will likely continue to increase.