Deductible debate: Experts urge new plan designs to promote effective care

Methodist Le Bonheur Healthcare in Memphis, Tenn., recently discovered how high-deductible health plans change patient behavior. Memphis-based FedEx Corp. moved its 400,000 U.S. employees and dependents into high-deductible plans with health savings accounts as of Jan. 1, 2014. Methodist had a contract with Cigna, which administered FedEx's plan. Most FedEx employees in the Memphis area use Methodist providers and facilities.

Then, in the first three months of 2014, Methodist began losing money. The not-for-profit health system was $17 million behind budget at the end of that first quarter. Michael Ugwueke, Methodist's president and chief operating officer, said that when the system's number of commercially insured patients came in well below expected, it was evident that FedEx's new high-deductible plans had contributed to the loss.

Methodist quickly responded with modest layoffs and added cost-control measures. Some of Methodist's patient volumes returned at the end of the year, after patients met their deductibles and were more willing to use healthcare services. The system ended 2014 with a surplus. But the experience was a signal to Methodist's leaders that high-deductible plans were changing the dynamics of the health system, for better or worse.

“We've read and heard about employers introducing high-deductible plans as a means of dealing with healthcare costs,” Ugwueke said. But until the FedEx experience, “we didn't really feel it that much.”

Some health policy experts and lawmakers see high-deductible health plans as a key to reducing U.S. healthcare costs through a consumer-driven model. The concept is that patients will use healthcare services more thriftily—avoiding medically unnecessary care and shopping around for lower-priced hospitals, doctors, products and services—if they face greater out-of-pocket exposure to costs. Free-market advocates long have pushed this approach.

But some experts argue that high-deductible plans are blunt and potentially dangerous instruments as currently designed. As an alternative, some employers, insurers and observers are championing value-based insurance design (VBID) as a way to refine the rough edges of high-deductible options. VBID plans waive or reduce out-of-pocket costs for services and drugs that are considered effective treatments for patients with chronic health conditions such as diabetes. Advocates say plans should be designed to encourage patients to get such services by making them free or low-cost.

While high-deductible plans have been growing for a number of years, they have proliferated under the Affordable Care Act. Insurers increasingly have to compete on premium for a standard package of benefits, and employers want to avoid the law's so-called Cadillac tax on high-value health plans that starts in 2018. In the expanded individual insurance market, consumers are looking for the cheapest premiums and high-deductible designs and narrow provider networks are two central ways insurers are able to offer lower rates.

Under Internal Revenue Service rules, a high-deductible plan for 2015 must have a minimum deductible of $1,300 for individual coverage and $2,600 for family coverage for policyholders to qualify for a tax-advantaged health savings account. Many plans couple high deductibles with substantial copayments and coinsurance. According to the Kaiser Family Foundation, 41% of workers with job-based coverage were enrolled in a plan with a deductible of $1,000 or more for single coverage in 2014, up from 10% in 2006.

RAND Corp. studies in the 1970s and again in 2011 found that people in high-deductible plans reduced their healthcare expenses when they had to pay more out of their own pockets. But researchers found that high-deductible plan enrollees skimped on both necessary and unnecessary care. Experts warn that this consumer strategy will lead to more expensive treatment down the line.

A recent study published by the National Bureau of Economic Research found that use of medications to treat hypertension, high cholesterol and diabetes dropped when one employer switched to a high-deductible health plan that did not exempt prescription drug spending. Patients' out-of-pocket spending for the drugs declined, the study found, and most of that decrease was attributed to using less medication.

High deductibles are a concern because “people are making choices about what they will get or not,” said Bernard Tyson, CEO of Oakland, Calif.-based Kaiser Permanente, which nevertheless has begun offering high-deductible plans.

“Eventually, with something that really needs to be done, you end up with (patients) dragging it out.” Consequently, their condition and the cost of care “gets more and more serious.”

Another issue is how high-deductible plans cover preventive services such as cholesterol screenings and vaccines. The ACA requires all health plans to cover 17 services that earn A or B ratings from the U.S. Preventive Services Task Force with no deductibles or cost-sharing. But there's a wrinkle: If those screenings and preventive services lead to further tests, procedures or prescription drugs, patients are subject to their plans' cost-sharing.

In addition, federal rules bar health plans from covering clinically recommended services for people already diagnosed with a chronic illness until the deductible is met. For example, a doctor might recommend an eye exam for a patient with diabetes, but the patient would have to pay for the exam out of pocket because it's not a preventive screening. “You pay the same whether it's something I beg my patients to do or I beg my patients not to do,” said Dr. Mark Fendrick, director and co-founder of the University of Michigan Center for Value-Based Insurance Design.

Under the ACA, the maximum out-of-pocket limits for 2015 are $6,600 for an individual plan and $13,200 for a family plan. Those high deductibles and out-of-pocket maximums are making healthcare unaffordable for many patients, especially those with lower incomes, leading many to skip necessary care, according to recent reports from the Commonwealth Fund and consumer advocacy group Families USA.

The Commonwealth Fund found that 14 million adults were underinsured last year because their deductibles equaled at least 5% of their income, incentivizing them to put off care. More than a quarter of adults who purchased individual coverage on the ACA exchanges last year said they skipped medical procedures or did not buy drugs because they cost too much, according to Families USA. High-deductible plans were cited as a primary cause.

“Gaining health coverage too often still leaves healthcare unaffordable due to high deductibles and other out-of-pocket costs,” said Ron Pollack, executive director of Families USA.

But insurers argue that the popularity of high-deductible plans proves that consumers value lower premiums and the freedom to choose such plans. Roughly 20% of Aetna's employer-based members are in high-deductible plans, compared with 10% in 2009. Michael Booth, president of Axion Risk Management Strategies, a Chicago-based health benefits consulting firm, noted that the health savings accounts linked to high-deductible plans give workers a tax-advantaged means of paying out-of-pocket costs.

But Kaiser's Tyson acknowledged some consumers' unhappiness with the plans. He recently spent time in Kaiser's call centers fielding phone calls from members who wanted to know why they were receiving out-of-pocket bills they couldn't afford when they were also paying monthly premiums. “You hear real people talking and the real people don't like it,” Tyson said. They ask, 'Why am I paying you 50, 60, 70, 100 bucks every month for your care, and then I come in and you charge me another 30, 40, 50 bucks, and oh by the way, I don't have that kind of money.' ”

The problem isn't just the size of the deductible. It's also the actual prices of healthcare services. Mike Dendy is CEO of Norcross, Ga.-based Advanced Medical Pricing Solutions, a company that audits healthcare bills for self-insured employers to ensure that providers and third-party payers are charging accurate and reasonable prices. He said third-party payers often don't closely scrutinize the accuracy of the charges.

Companies and patients have to pay the balance, often unaware the bills haven't been thoroughly reviewed.

High-deductible plans are supposed to encourage patients to shop around for lower prices and better quality. While more insurers are offering online cost and quality transparency tools, such tools still are not widely available or easily usable, and they often lack credible quality indicators about providers. That makes it difficult to shop even for non-emergency, elective services.

But perhaps the most pervasive problem with high-deductible health plans is their inflexible design. University of Michigan's Fendrick and others tout value-based insurance design as an improvement. VBID allows plans to incentivize patients to seek out services that are clinically recommended and could improve outcomes and reduce costs. It's adding “clinical nuance” to plans, Fendrick said.

Some employers have incorporated VBID into their plans. A 2010 Health Affairs study said that less than 20% of large employers use VBID, although many more are interested in implementing such designs. For instance, Pitney Bowes reduced cost-sharing for asthma and diabetes drugs from 50% to 10% in the early 2000s, which lowered the long-term health costs of its employees with asthma and diabetes. Two Oregon public-employee health plans adopted value-based deductibles and benefits in 2010. Aetna launched its Rx Healthy Outcomes program in 2011, which reduces copays for certain drugs that treat chronic conditions.

Last month, members of the House and Senate proposed bipartisan companion bills that would create a VBID demonstration program for the Medicare Advantage program. Participating Advantage plans would be able to reduce copays and coinsurance to encourage the use of evidence-based services, but they would not be able to raise cost-sharing.

“When patients forgo high-value medications or healthcare services due to cost, they are more likely to suffer adverse and often serious events that could have been prevented, ultimately driving up the cost of care,” Sens. John Thune (R-S.D.) and Debbie Stabenow (D-Mich.) said in a joint news release.

With value-based insurance designs, “We preserve the transparency, we preserve the consumer responsibility, we preserve the deductible levels, but we don't make it a one-size-fits-all deductible level,” Fendrick said.

Others, however, aren't convinced that any form of high deductibles is necessary or desirable for improving care or reducing costs. Dr. Stephen Kemble, a psychiatrist in Hawaii, notes that deductibles are practically nonexistent in his state. Hawaii passed an employer mandate law in 1974 that requires all companies to provide health insurance to employees who work more than 19 hours a week. Employers must pay at least half of premiums, and worker contributions cannot be more than 1.5% of their wages.

Employee plan contributions and deductibles average about 6% of the median Hawaiian household, the lowest of any U.S. state, according to the Commonwealth Fund. Healthcare costs and premiums in Hawaii have grown at a lower rate than the U.S. state average.

Kemble, an advocate of a single-payer health insurance system, said it's unreasonable to expect lower-income people to pay high deductibles and $6,600 in maximum out-of-pocket costs. “No one making $25,000 a year with a serious chronic illness can possibly afford that,” he said.