For those looking to save on health insurance, high deductible health care plans (HDHC) are an alluring option. In essence, the plan works by making the insured pay more costs out-of-pocket in exchange for lower premiums. These aren’t small dollars in savings and spending, either. Deductibles are a few thousand dollars, and I’ve seen savings of one-third to half your premium costs. While the economics behind the plans seem sound and the cost savings look good on paper, I have doubts that these plans will improve our health care system. In fact, these plans might make things worse.
Generally, you cover your own health costs up until you reach the deductible. Then there is a period of co-insurance where you and the insurance company split costs until you reach the maximum out-of-pocket. Once you’ve topped the maximum, you are fully covered by your insurance company.
In addition, you qualify for a Health Savings Account. It works much like a 401k. You can contribute pre-tax dollars to an investment account. That investment account can then be used for medical expenses. Employers often contribute funding to go into those accounts and unlike an FSA, money in your account rolls over every year.
From an economic theory standpoint, these plans make a lot of sense. By shifting initial costs onto the insured, you force consumers to be more cost conscious. When everything is covered do you look for the best price? Do you rationalize whether a test or preventative procedure is necessary? If people have to pay more costs out of pocket, they are more likely to shop around for better prices and less likely to accept unnecessary medical procedures.
If consumers can start making smarter choices, it should mean less unnecessary use of health care without rationing care. While consumers might be paying more out of pocket, the added hassle of managing your own health bills seems like a good trade-off for much lower premiums. The higher deductibles should translate into fewer claims for the insurance company. It’s seems as though everyone wins with high deductible health plans.
There is a subtle flaw behind the simplicity of high deductible health care plans. These plans assume that keeping track of your own health care costs is easy to do. So long as you only have only a few expenses, it is true. However, for those that have a serious illness, managing your own health care costs is very challenging and it all has to do with how health care is billed these days.
Costs are a challenge for anyone to navigate. Here are some examples of how complex the bills can be:
If you can’t figure out what you must pay out of pocket versus what is covered under you insurance, it is impossible for you to effectively make good health care decisions.
A recent case in Phoenix brings to light a real conundrum when it comes to patients bearing more costs. A man went in to have a free colonoscopy, but left with a giant bill when some benign polyps were extracted for testing while he was under sedation. The preventative care was free, but the diagnostic medicine was expensive.
We are all in agreement that if the man needs to pay costs out of pocket, the decision to remove suspect polyps during screening should not be made by a doctor while the patient is asleep. So how should this have been handled? Wake the man up, and then redo the procedure? Have the man come back? Both these options are very inefficient, but should doctors be the party to decide when an expensive procedure should be added to your bill? On the other hand, having to do and redo procedures will increase costs to health care in general.
I’m not saying the high deductible health care plans can’t work well for everyone some day. The basic economics behind the plan are sound. The point I want to make is that these plans are very new and consumers need training, education and tools to make these plans work well. None of these tools are in place yet and it puts consumers in a difficult position. High deductible health care plans might one day translate into great, low cost insurance, but not yet.
Shaun is the author of the blog Smart Family Finance, a site dedicated to exploring the challenges of family finance; from starting a marriage to starting a family, from teaching your children about finance to helping them pick a college, from single income to multiple income. The intricate world of family finance unlocked, one post at a time.