Large employers moving en masse to high deductibles

Medical Cost Trend: Behind the Numbers 2014

PwC Health Research Institute, June 2013

Each year, HRI issues its projection for the following year's medical cost trend based on activity in the market that serves employer-based insurance.

Consumer-driven health plans - insurance coverage with a high-deductible - are set to go mainstream in 2014. According to the 2013 PwC Touchstone Survey of major US companies, 44% of employers are considering offering high-deductible health plans as the only benefit option to their employees in 2014. Already, 17% of employers offer high-deductible plans as their only option in 2013, a 31% increase over 2012.

High-deductible health plans, which place greater responsibility on consumers, are designed to promote cost-conscious decisions. A recent study reported families that switched from a traditional health plan to a high-deductible plan spent an average of 21% less on healthcare in the first year.

The ACA, with its new insurance marketplaces, accelerates the move to consumer-driven plans. Many of the newly insured say they are willing to accept plan features such as higher deductibles in return for lower monthly premiums - as found in the new bronze and silver plans.

2013 - Average deductibles

$1,230 - In-network
$2,110 - Out-of-network


By Don McCanne, M.D.

The forces supporting consumer-driven health care (CDHC) have incessantly asserted emphatically that the answer to our health care spending problem is to place the consumer (i.e., patient) in charge of health care spending. Although some of us have been trying to explain the horrible consequences of this approach, the mainstream media disseminated the message of the CDHC advocates so effectively that it has now become a meme. The CDHC camp has won the policy battle.

How can we say this? CDHC has now become virtually synonymous with high-deductible health plans (HDHP). Whether or not the deductible passes through a health savings account or is paid directly really doesn't make much difference since the designated cash account is simply a matter of tax policy rather than health policy. Let's look at a very brief history of HDHPs to see if we can understand why we lost.

Large employer-sponsored group plans have been the mainstay of health coverage in the United States for decades. They have provided comprehensive coverage through high actuarial value plans which required only modest cost sharing by the patient. As health care costs increased, large employers depended more on controlling spending by creating networks of providers with contracted rates. In contrast, individuals, and to a certain extent smaller employers, were unable to afford the premiums for high actuarial value plans and so the insurers heavily marketed high-deductible plans that had much more competitive premiums; so that's what people bought.

When the Affordable Care Act was written, it was recognized that high actuarial value plans would be unaffordable unless the government subsidies were much larger than members of Congress were willing to budget. Thus the decision was made to make the benchmark plan for the insurance exchanges a low actuarial value plan (silver), made possible only by using high deductibles.

Large employers have been looking for relief from the very high costs of their employee health benefit programs. It looks like they've found it, now that HDHPs are becoming the new standard set by our government for the plans in the exchanges. This report from PwC shows that 12 percent of employers used HDHPs as their only option in 2012, and that may increase to 44 percent next year! That is a phenomenal shift in such a short period, and is the basis for saying that the CDHC (HDHP) camp has won the policy battle.

Not only are patients assessed a significant financial penalty for seeking health care (an average $1,230 deductible), that penalty is almost doubled if the patient obtains care out of network ($2,110 deductible) - a greater likelihood as narrower networks become more prevalent.

HDHPs have become popular for one reason only, and that is not because they make patients better shoppers. It is only because the premium to purchase the health plans is more affordable (or for self-insured employers the amount paid out in benefits is less).

There are two important trade-offs for the lower premiums. One is that people will decline to obtain appropriate health care since they will have to pay full fees until the deductible is met. A properly designed financing system should make it easier for people to obtain the care they need, not more difficult. The other is that far too many people have little or no discretionary income, and high deductibles create a financial hardship for them. The health care financing system should reduce or eliminate financial hardship, not create it.

And the out-of-network penalties? A financing system should increase health care choices for patients, not reduce them.

This boat is not going to turn around. Within two or three years, HDHPs will be the standard for employer-sponsored coverage. More people will suffer. The media knew that this change had to come, but only because they didn't listen to us. They simply dismissed single payer because of another meme - "it isn't feasible."

I'm not a violent person, but the next time I hear, "skin in the ...," watch out!