The New Normal In Health Insurance: High Deductibles
By Jay Hancock
Source: KHN Staff Writer
JUN 03, 2012
Angela Wenger calls herself a self-reliant “German Midwesterner” who hates to complain. But the Wisconsin mom was dismayed when husband Dan’s employer switched to an insurance plan that increased the family’s medical expenses tenfold.
Two years ago, the company put white-collar workers on a “high-deductible” plan similar to those typically bought by small businesses and individuals. The Wengers’ out-of-pocket medical costs, mainly for treating daughter Emma’s juvenile arthritis, soared from a few hundred dollars a year to $7,000, she says.
The employer: General Electric, one of the largest companies in the world. High-deductible health plans, once deemed a last-resort, “catastrophic” alternative for those with few resources, have gone Fortune 500.
“A number of employers have looked at this over the last couple of years, and they’ve said, ‘No, this isn’t the year, no this isn’t the year,’ ” said Mark Olson, a senior actuary at benefits consultant Towers Watson. For many, he says, this is the year.
“I don’t really see it stopping at this point,” he said.
Seventy percent of large companies recently surveyed by Olson’s firm said they’ll offer high-deductible insurance by 2013 combined with accounts that let patients buy medical services with pretax dollars, often funded by the employer. Nearly a fifth of the firms responding to the survey, conducted by Towers and the National Business Group on Health, a nonprofit alliance of large companies, said high-deductible coverage would be the only option in 2013.
Half of all workers at employer-sponsored health plans — including those working for the government — could be on high-deductible insurance within a decade, according to anew paper from Rand Corp.
Supporters say the plans can contain health costs. Patients who have to pay for care up front will take better care of themselves and shop more carefully, the thinking goes, seeking lower-cost providers or asking whether tests are necessary. High-deductible plans, known as “consumer-driven” insurance, may partly account for a recent slowing in the upward spiral of medical spending, analysts say, although reluctance to buy health services in a poor economy is also a factor.
Critics say high-deductible insurance is just a way for corporations to shift costs onto workers, especially those dealing with chronic illness such as diabetes and arthritis. Further, consumers aren’t prepared to shop for treatment because reliable information on price and quality is difficult, if not impossible, to find. High deductibles, they say, boost chances that patients will delay seeking care until ailments become acute. Still, high-deductible plans, long promoted by Republicans as a way to bring market forces to medicine, are here to stay no matter how the Supreme Court rules on the 2010 health-care law, experts say.
“There’s no question that high deductibles are spreading,” said Jonathan Oberlander, a health policy professor at the University of North Carolina. “That’s a pretty significant trend, and I don’t expect it’s going to slow up anytime soon. Employers like it because they’re providing less coverage. If they can relabel it as consumer-driven then it even sounds good.”
Deductibles are expenses paid by employees and families each year before their medical insurance kicks in. In the past, they’ve typically been a few hundred dollars. Definitions vary, but deductibles for consumer-driven plans are usually at least $1,000 for individuals and $2,000 for families. This year, banking company JPMorgan Chase narrowed its choice for most employees to two medical plans, one with a $3,000 deductible and another with a $5,000 deductible, both for family coverage, plan documents show. The company declined to comment on the switch.
Eager to contain costs, Chrysler introduced a preferred-provider plan with family deductibles as high as $3,400 for salaried workers, said health-care director Kathleen Neal in an April presentation to the World Health Care Congress. The deductible falls to $1,000 for in-network care if employees receive a physical and take other steps such as completing an online health assessment.
“Chrysler really pushed us into it,” Daniel Loepp, chief executive of Blue Cross Blue Shield of Michigan, said of the insurer’s expansion of the high-deductible menu. “We had to meet the demand.”
Big companies that have shifted all or most employees to high-deductible coverage include financial firms Wells Fargo and American Express and grocer Whole Foods. All U.S. workers at building materials giant Saint-Gobain will be on a high-deductible plan starting next year, benefits manager Natasha Romulus said.
This year, General Electric moved hourly workers to high-deductible coverage after imposing it on salaried employees two years ago.
“I won’t characterize it as a change people were delighted by,” said Ginny Proestakes, GE’s director of health benefits. But, she said, “With the tough economic environment, we felt it was a wake-up call for the industry and GE to tackle health care in a different way.”
GE has aggressively promoted the plan’s free preventive care and health coaching while urging employees to comparison shop using a “treatment cost calculator,” she said.
Among high-deductible plans’ advantages: For both companies and workers, premiums are substantially lower than for traditional coverage. Employers often use money saved on premiums to fund tax-free health savings accounts and similar arrangements to help workers pay for deductibles.
Even before the Affordable Care Act required all plans to pay for preventive care, high-deductible insurance typically covered 100 percent of the cost of physicals and screenings, benefits experts say. Like many companies, GE contributes company money to the tax-free accounts — $500 for individuals, $1,000 for families — for employees to pay some of the deductible.
The idea is for people to receive the preventive care they need and seek lower-cost treatment when they get sick, knowing their money is first in line to be spent.
Republicans favoring a bigger consumer stake in medical decisions gained congressional approval in 2003 for the health savings account, an expanded way for companies to set up tax-free savings pools for patients to cover out-of-pocket costs. But only in recent years have such accounts, usually paired with high-deductible plans, taken off.
The accounts “empower workers with more freedom to make their own health decisions that best fit their families’ needs,” said Sen. Jim DeMint (R-S.C.), a longtime supporter of consumer-driven coverage. “These plans allow Americans to become savvy health-care consumers, saving money and increasing quality.”
Another Rand study, this one published last year, showed that total medical spending on families who switched to high-deductible plans was 14 percent lower than for families on conventional plans. But the high-deductible families also cut back on preventive care — perhaps because members didn’t realize the deductible didn’t apply to such visits, the study found.
“There’s big concern about how these costs are getting cut, and not just for humanitarian reasons,” said Carnegie Mellon professor Amelia Haviland, one of the study’s authors. “If they are cut in ways that decrease people’s health, that can lead to greater cost down the line.”
For severely ill patients or families coping with chronic illness, switching to high-deductible insurance can be the equivalent of a large pay cut.
“I’ve always hated the term consumer-driven health plan,” said Oberlander, the health policy professor. “If we want to describe them accurately, they should be called employer-driven health plans for less comprehensive health insurance.”
Emma Wenger, 11, was diagnosed with rheumatoid arthritis when she was 3. The disease, which can cause swollen joints, delayed growth and even blindness, requires frequent MRI scans and drug infusions costing tens of thousands of dollars.
The family, who lives in Pewaukee, Wis., has surpassed its high deductible and hit the $7,000 out-of-pocket maximum shortly after the beginning of each year, Angela Wenger said. They adjust by driving older cars, skipping vacations and skimping on retirement saving, she said.
“The thing that worries me is if we went to $7,000 from virtually nothing, where is it going?” she said. “Because there will be a high-water mark for everyone where you say, ‘We just can’t afford it anymore.’ ”
Unlike conventional plans, in which out-of-pocket limits can be vague or flexible, many high-deductible plans put strict caps on out-of-pocket spending for in-network care, including for prescription drugs. That may be better for the chronically ill than coverage with no cap in which they never know what annual costs will be, said Roy Ramthun, a benefits consultant who worked on health policy in President George W. Bush’s administration.
“What most people are forgetting is that these plans offer true catastrophic coverage on the back end,” he said. “That’s got to be the best possible option for people who have chronic conditions.”
The burden for patients in high-deductible plans is hard to measure. Out-of-pocket costs as a portion of national health spending have been declining since the 1960s, but the latest government data are from 2010. As consumer-driven insurance gains popularity among employers, however, analysts say they wouldn’t be surprised to see that five-decade trend reverse itself. In the Kaiser Family Foundation’s 2011 employer survey, 17 percent of the covered workers were enrolled in a high-deductible plan, up from 4 percent in 2006. (Kaiser Health News is an editorially independent program of the foundation.)
The Wengers see the trend firsthand. Dan Wenger got a job at another large company in mid-2010. There, too, consumer-driven health plans — their coverage has a multi-thousand dollar deductible and a $7,000 out-of-pocket cap —were the only choice.