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Are High Deductibles Really About Patients Having “Skin in the Game”?

Each year more of us, the insured population, are being rolled into health insurance plans with high deductibles. As a technical matter a high deductible health plan (HDHP) is one with an individual deductible of at least $1300 and at least $2600 for a family.

The reason for high deductibles that is most often given, is consumers (patients) need to have an incentive to not over use health care services. While there may be a certain small sub-set of the insured population that might use these services in a wasteful manner the simple truth is that most people are healthy most of the time. About 50% of the health care spending in a given year, for people under 65, is attributed to just 5% of the non-elderly population. At the other end of the spectrum, 15 percent of the population recorded no spending whatsoever in the year, and the half of the population with the lowest spending accounted for just 3 percent of total spending.

My experience using the healthcare system support these figures. We know preventative care is cheaper in the long run than allowing a condition to fester and manifest into a full blown acute or chronic condition. These expenditures are preventative and discretionary. My major expenditures have been surgeries and treatments that were completely non-discretionary so the presence and size of the deductible and out-of-pocket never entered my decision-making process – I simply had no other choice.

If 20 million more people now have health insurance as a result of the ACA and most people still get their health insurance through an employer why have high deductibles become so increasingly common for both individual and group policies?

The short answer is that health insurance is a business that exists to make money for the stake-holders. These businesses are not very transparent. The obligations of both parties are governed by impenetrable legal language in policy contracts that are written by the legal department of the insurers. The insured seldom have legal advice to help them understand the coverage, conditions and limitations. They often learn what the fine print says after the fact.

Most people believe their insurance is there to help them when they get sick and that their insurer spreads their risk across all their policy holders. This concept of sharing the cost of care for the sick across a broader group is known as risk pooling. The majority of healthy people pay for the few sick ones. Segmenting risk pools has the opposite effect. It saves money for the currently health part of the group while increasing costs for those with health problems.

We’re all small business owners trying to figure out how this works and where things are going. If you have questions or want to discuss please give us a call.

Next time I will go into more depth about policy terms that sound innocuous and are means to segment risk pools and make for money for the insurer.