Last year, Congress passed, and President Bush signed into law, legislation expanding high-deductible health insurance. Such insurance requires families to pay at least $2,000 each year (in addition to premiums) before health coverage kicks in. This law also includes tax-advantaged “health savings accounts” (HSAs), designed to provide consumers with funds to use before they spend enough to meet the deductible. The IRS recently released guidance that is likely to make these accounts even more appealing to employers. Supporters of this approach would like you to believe that these so-called “consumer-driven” health plans are consumer-friendly. Unfortunately, the term is merely a euphemism for a policy that favors the healthy and wealthy and leaves the working poor and chronically ill to carry a greater financial burden.
In fact, a more apt term for this type of medical plan is a “defined contribution health plan.” Like defined contribution retirement plans such as 401(k)s, these plans replace comprehensive benefits with more limited benefits and shift costs and responsibilities to employees. In health care, this means a higher deductible (between $1,000 and $10,000), combined with a tax-advantaged health savings account, possibly with a contribution from the employer. Most “consumer-driven” plans build in a “gap” of coverage, assuring that the employee must pay for some health care costs entirely out-of-pocket before any coverage kicks in.
Two new studies (published in a special edition of the journal Health Services Research) shed light on this trend toward offering high-deductible health plans. The first, which analyzed 16,000 University of Minnesota employees who were allowed to choose between a traditional health plan and a less-expensive high-deductible plan, provides evidence that high-deductible plans favor the well-to-do. It found that those who chose the high-deductible plan had incomes that were 48 percent higher than those who selected traditional plans. Higher-income, better-educated employees tended to select high-deductible plans, figuring that they would come out ahead financially. If they had to pay the high deductible (because of, say, unexpected medical expenses), they could afford to do so. But lower-income employees paid the higher premiums for the low-deductible plans because in our view they couldn’t take the risk of having to pay for the deductible if they had unexpected medical expenses.
The second study of 4,680 employees of Humana, Inc=, provides evidence that high-deductible plans favor the healthy at the expense of those most in need of medical care. In the study, only 7 percent of employees selected the high-deductible plan, and these employees were significantly healthier on every measure studied. This means problems for those left in the traditional plan, as the overall pool would be less healthy and therefore riskier. This could lead to higher premiums down the road, which might encourage more people to join the high-deductible plan, leading to an adverse selection spiral.
The current policy of promoting high deductible plans (including the proposal for a new tax deduction for individual high-deductible policies) will weaken the employer based health care system by providing employers with financial incentives to “cash-out” health benefits, sending employees to the individual market. This market cherry-picks the healthy and creates barriers to coverage for the sick. This policy undermines the purpose of insurance (whether health, homeowners, car, or any other type), which is to pool risk. With most health insurance – employer coverage, Medicare, and most other countries’ systems – the healthy subsidize the unhealthy, to ensure that overall premiums are reasonable and that everyone covered by the plan receives the health benefits they need when they get sick. In fact, the system is intended to have the healthy subsidize the sick, since none of us can be fully in control of our health. Outside factors such as heredity, the environment, and plain luck also play a role, even among those of us who eat healthfully, exercise faithfully, and keep stress to a minimum. Ultimately, we all benefit by having a comprehensive healthcare system that takes care of the poor and the rich, the sick and the healthy, and everyone in between.
Tax incentives to favor “consumer-driven health care,” such as last year’s HSA legislation, exacerbate marketplace forces on employers. Despite the fact that high-deductible plans are unpopular with consumers, we may soon find that our health care system has taken giant steps toward a market dominated by such plans. In a world in which high-deductible coverage was pitched as a “choice,” future consumers may have very limited options, all of which involve high deductibles.
America’s healthcare system is fragile enough today, with millions of people left uninsured or underinsured. Are we as consumers, patients, and taxpayers going to cede the future of health insurance to the supporters of high-deductible coverage? The upcoming presidential and congressional elections provide an ideal opportunity to probe candidates’ health care philosophy and priorities. Do they favor shifting the burden to those with chronic costly health conditions? Do they favor gaps in coverage that create financial barriers to care for many? Do they support policies that divide the healthy from the sick, the rich from the poor? The health care stakes have never been higher.
Gail Shearer is the director of health policy analysis and Susanna Montezemolo is the legislative representative in the Washington office of Consumers Union.