Does ObamaCare Deserve The Credit (or Blame) For Rising Deductibles?

become-richGalen Benshoof, a guest blogger at The Incidental Economist, writes that rising deductibles are not entirely a consequence of ObamaCare, but also the rise of Health Savings Accounts and associated high-deductible, consumer-driven health plans over the last decade.

However, Benshoof’s description of the effect of consumer-driven health plans suffers from misunderstanding:

In the 1990s, some conservatives gravitated to a health insurance scheme that shifted costs and responsibility onto workers. They called this consumer-directed health care (CDHC), although the real beneficiaries were employers.

First, it is not possible for employers to shift “costs and responsibility” for health benefits onto workers because workers always bear 100 percent of the cost and responsibility for their health benefits. In our employer-based system, money is siphoned away from their wages before it even hits their paychecks. This is one reason why wages have stagnated for years: More compensation has come as benefits. A consumer-driven health plan puts more health-care dollars under patients’ control than under control of insurers and employers.

Second, it is hard to fathom how this shift of control benefits employers. It has benefitted society overall, because it has bent the curve of health-care inflation. John Goodman and Peter Ferrara recently explained this, using data that overlaps Benshoof’s.

Third, there is a fundamental difference between the consumer-driven plans that arose over the last decade and the high-deductible, limited-access plans in the ObamaCare exchanges. The former cam to dominate the individual market, and made significant inroads to employer-sponsored benefits, because purchasers found value in them. The latter are the results of a “race to the bottom” in which insurers are engaging in a failing attempt to attract young and healthy people while shunning older and sicker ones.

Comments (36)

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  1. Devon Herrick says:

    Deductibles have been rising for more than a decade. Over the past 10 years, deductibles have more than doubled. There’s nothing wrong with that; the only problem is that insurers are not good about providing the tools to allow consumers to compare prices for care received below the deductible.

    It’s not easy to “force” providers to disclose prices (since there’s not one price, but dozens of prices). However, payers need to develop a way for consumers to compare prices. If insurers are afraid to reveal actual prices, they could at least show benchmark prices for providers willing to allow it. Those unwilling to allow it would be blacklisted and patients steered away from them.

    • John Fembup says:

      “Deductibles have been rising for more than a decade.”

      True, Devon. In fact, for at least 30 years that I remember.

      If deductibles were rising while medical costs remained static, that would be one thing.

      But that’s not what is going on. Deductibles are rising in response to the continual increase in the cost of medical care. The consumer cost isn’t coming from a deductible, it’s coming from medical care.

      Trying to solve a problem of medical cost by tinkering around with insurance – such as higher deductibles, or 100% reimbursement of preventive care, or coverage for pre-existing conditions – won’t work. That’s because the cost of insurance will continue to rise so long as medical costs continue to rise.

      I think the fundamental defect of Obamacare is that it’s an insurance mechanism; so it not only fails to address the underlying cost of delivering medical care, but threatens to make that cost rise even more – by subdsidizing it.

      • Liz Sykes says:

        I agree. I also think that the deductibles are higher due to increases in cost of medical care. There has to be a way to contain medical costs. Without containing them, they are likely to continue to increase affected all consumers of health insurance.

        • Marie Wong says:

          I agree the problem isn’t with insurance, it’s with the cost and delivery of medical care.

          Within the insurance world, unfortunately, if medical costs and delivery aren’t contained, I believe it’s a two way street either people pay more or care is managed more. Employers don’t want to pay more, that’s why the consumer drive plans.

          The government did not create the limited access plans, insurance companies did to make these plans provide a profit to them.

          What I still don’t understand is why the Cadillac tax in 2008 for employers. The government is saying they don’t want employers to provide “rich” plans anymore? Is it a government pitch to get employers to get tougher with their employees about health care usage? Employers will have to reduce benefits to not get stuck with an excise tax with a “rich” plan.

          • Uwe Reinhardt says:

            You are right, Ms. Wong. The Cadillac tax is designed to “incent” (as the jargon goes) employers to offer employees skimpier health insurance policies.

            Governments often try to nudge people one way or the other through incentives of this sort.

            For example, getting the tax preference accorded HSAs is conditioned on your buying a particular kind of health insurance policy, with a minimum specified deductible. In effect, the government is telling you that I give you sax savings if you buy the kind of health insurance policy I wish you to buy.

            That’s the way it goes.

  2. Martin F says:

    According to Benshoof deductibles are raising due to government intervention (Obamacare) and consumer choices. Given that he is correct, that both are guilty of increasing deductibles, which one should we choose? Because we live in a free market economy, I prefer the consequences of giving people choice, rather than the consequences of government mandates.

    • Buddy says:

      Certainly shouldn’t choose government intervention and mandates. We need to get away from the government help as quickly as possible.

      • White says:

        But the government keeps offering many plans. Individual choice may not be able to create synergy

        • Martin F says:

          Giving people choice allows them to use the plan that suits them better. When you allow people to choose freely they will look for differentiation among the insurance companies. This differentiation is caused mainly by the free competition among the insurance companies. As government intervention increases and its bureaucracies flood the industry, there will be less competition, less innovation and fewer benefits for the consumers. It is easier to create synergy from competition than from government mandates. By definition synergy comes from improving efficiency, and is no secret that government is not an effective institution.

          • Uwe Reinhardt says:

            To Martin F:

            It is too bad that government is involved in the insurance exchanges because if it were not involved and the exchanges offered the insured exactly the same considerable choice among insurance products the exchanges now do offer in most areas, then that same degree of choice would be wonderful, would it not?

    • John Fembup says:

      “According to Benshoof deductibles are raising due to government intervention (Obamacare) and consumer choices. Given that he is correct . . .”

      Martin, I think this is far from a “given.”

  3. Matthew says:

    It appears that deductibles have been rising several years before ACA kicked in. It could just be a matter of how much more they rise due to ACA.

    • Thomas says:

      If deductibles are rising regardless, then ObamaCare cannot take the brunt of the blame. However, if consumer choices make it to where higher deductible plans are the optimal choice, you can’t fight consumer preference.

      • Matthew says:

        But as the deductibles rise from ObamaCare, consumers also get limited access plans along with higher deductibles. That is not consumer choice.

    • Kevin D says:

      Correct, the question is not how much the deductibles have increased in the last few years; the question is the rate they have increased. It is normal for prices (or deductibles in this case) to increase over time. This increase is normally at a steady pace. With the implementation of Obamacare, deductibles increased at a significant higher rate making it harder to afford.

      • Andrew says:

        Right, we could see a spike in deductible cost due to ObamaCare, as opposed to the steady increase. This spike along with narrow networks and limited access plans is trouble for consumers.

      • Uwe Reinhardt says:

        It is heartwarming to see comments on this blog that lament the high deductibles people face on the exchanges. These could of course have been lower if the subsidies had been higher, which would increase government spending.

        • John R. Graham says:

          And would also bend the cost curve upward, because it would remove constraints on providers.

  4. Ricky R says:

    One of the problems of Benshoof piece is that it is biased. He is not giving an argument; he is plainly attacking the GOP policies. He is right, not all policies enacted by the Republicans are perfect. But for the piece to have validity it cannot ignore data that contradicts his point of view. Benshoof mentions that ACA has lowered the rate in which people enroll in HDHP’s but he doesn’t give any evidence to support this claim. Considering what it is claimed in John Graham’s post, it is clear that Benshoof let his partisanship dictate what to write and he willingly omitted information in order to present a stronger case.

  5. Gerrard M says:

    How can one argue that the increase in deductibles is not ACA fault and ignore the data after Obamacare was launched? It is impossible to say that it is better or worse if we don’t have something to measure against.

  6. White says:

    For those who are healthier and do not see the doctors very often, higher deductibles might slightly hurt their benefits. For those who have to see the doctors periodically, higher deductibles refer to more out-of-pocket money.

  7. Peter A says:

    One of the best examples that Benshoof is criticizing GOP policy instead of answering the question if ACA is raising deductibles is the fact that two out of the three graphs have nothing to do with the deductibles being paid. The second two graphs show how popular have the HDHPs been since they became widely available, which shows that people are opting to pay more out-of-pocket than high premiums. This has nothing to do with the fact that deductibles have increased or not. Benshoof is targeting GOP and doing his best to defend ACA, but it is a failed attempt to do so. Especially if we consider that if more people prefer high deductible plans, an increase in price will have a greater effect in the economy.

  8. Rich Berger says:

    The problem for employers is that health benefits are an uncontrolled form of compensation. In order to keep their compensation budget from exploding, they have to increase deductibles/co-pays/employee contributions.

    • Uwe Reinhardt says:

      But that would not be so if John Graham is right. The employer paid premiums simply reduce take home pay so that the total compensation budget would be the same. Are you saying you don’t believe John Graham’s theory?

  9. bob hertz says:

    John, not all consumer directed plans are so benign as you suggest.

    1. Say that I had a generous employer plan with a $250 deductible.

    My employer now offers me a consumer directed plan with a $2,500 deductible.

    Due to health care inflation and frequent death spirals, the premium for the high deductible plan is not much less than the old premium.

    So now, by your own phrasing, I am “in better control” of my health expenditures.

    Big deal, in a way. If I get sick I am just poorer.

    Reminds me of the shift from defined benefit pensions to 401k’s. It is absolutely true that 401K participants are in better control of their pensions.

    But it is equally true that a majority of 401K participants have just plain less money at retirement.

    2. Also, very few employers actually “seeded” the workers HSA accounts with any money.

    The result has been a rise in unpaid bills and collection actions. At least I have read this in numerous stories in health care literature.

    I am not saying that we have to go back to low deductibles. I am saying that your language seems a little too rosy.

    • John R. Graham says:

      Thank you. High deductibles are not the be-all and end-all of consumer-driven health care. As Devon Herrick describes above, there continue to be problems with price transparency and price formation.

      But if health costs are rising and the deductible stays the same, the premium must go up higher, not stay the same. If the higher deductible results in bad debts for the provider, that is an incentive to improve its business processes.

      If the U.S. legalized the kind of health insurance that Dr. Goodman and colleagues have proposed, the whole notion of an annual deductible might go away. Instead, patient cost-sharing would become more specific to diagnosis and treatment (which I hesitate to describe in detail in a comment).

    • John R. Graham says:

      Thank you. High deductibles are not the be-all and end-all of consumer-driven health care. As Devon Herrick describes above, there continue to be problems with price transparency and price formation.

      But if health costs are rising and the deductible stays the same, the premium must go up higher, not stay the same. If the higher deductible results in bad debts for the provider, that is an incentive to improve its business processes.

  10. Uwe Reinhardt says:

    I am not quite sure exactly what is being debated here.

    Under ESI, employees usually (albeit not always) are given a choice of plans with different deductibles and premium contributions. The higher the deductible, the lower the employee’s premium contribution, ceteris paribus. It is part of what is called “consumer choice.”

    On the exchanges under the ACA, customers are offered a choice of bronze, silver, gold and platinum plans, each with different deductibles and premiums. The higher the deductible, the lower the premium. I don’t know what this is called, because it is government initiated, but I am tempted to call it part of “consumer choice.”

    I agree with John Graham though that, depending on the value employees put on employer-paid premium contributions, employers shift most or all of their outlays on premiums back into the take-home pay of employees collectively — at least that is what the theory of competitive labor markets suggests. But the fact that recent research has shown that employment levels in firms facing higher group premium costs tend to be lower, cet. par., suggests that the backward shift into take-home pay is not 100%.

    We must also distinguish between shifting back employer-paid premiums to employees collectively and the experience of the individual employee within the firm. In fact, I am not aware of a theory telling us how employers apportion their total outlay of group premiums to individual employees in the backward shifting maneuver.

    • John R. Graham says:

      Although there is a lot of friction (open enrollment, costs of job search), people will seek jobs with benefits that suit them. Because employers offer open enrollment annually, employees can switch from a high-deductible plan to a low-deducible plan based on their (families’) expected health status next year.

      Another friction is high search costs of understanding your health benefits. It is easy to discover your wages before you accept a job. However, even if the benefits have been described to you, you haven’t seen the details before accepting the job.

      So, I would not suggest that the function I have described is efficient, or liquid, or at equilibrium (redundancy deliberate to emphasize).

  11. Bob Hertz says:

    Well, now I get to disagree with both Dr Reinhardt and John Graham, both of whom I admire.

    I do not agree that most employers shift the cost of health insurance back onto wages. (especially large employers)

    Example:

    A federal or state government decides to hire a new category auto mechanics to work on motor pool vehicles.

    in the private marketplace, Jiffy Lube pays $30,000 a year with no employer health insurance.

    Does the government then offer $25,000 a year because it will also provide health insurance?

    Not at all.

    The government pays $35,000 AND health insurance.

    I firmly maintain that in most cases health insurance comes out of profits, (or rents in the case of government.)

    Employees who get a lot of benefits get a much better comp package than those without benefits. And better by a greater degree than is implied by the language used by many economists.

    • John R. Graham says:

      That’s because the government overpays. However, not everyone can get a job with the government. In the private market, it should even out. However, sicker people will seek work at employers with rich benefits. There is a limit to their ability to do this.
      E.g. Goldman Sachs has an extremely rich health plan, but sick people cannot get jobs at Goldman Sachs. But at less discriminating employers, which want to hire older people for repetitive, non-strenuous tasks, I can see offering very low wages and very generous benefits.

  12. Bob Hertz says:

    Raising the deductible usually lowers insurance premiums by 10 to 20 per cent.
    In my insurance industry experience, small businesses and individuals agreed to higher deductibles out of desperation, because they just could not afford another big premium hike. There was no strategy or philosophy behind what they did.

    I remember Dr Goodman’s suggestion for ideal health insurance. He basically divided health care into discretionary procedures like office visits and diagnostic tests, which insurance did not cover at all; and then nondiscretionary procedures like a broken leg or a heart attack, which were covered at 100% and no deductible.

    I proposed the same thing in a piece I wrote about Medicare reform. I would phase out Part B almost entirely. Medicare would only pay for doctors and diagnostic tests if they were required inside a hospital during emergency or life-saving care. Meanwhile Part A would have no deductible at all.

    This still leaves the challenge of what to do when a risk pool gets older and older and has more and more legitimate claims. But it is still a sound idea.

    Bob Hertz, The Health Care Crusade

    • John R. Graham says:

      Thank you. If by “risk pool gets older” you mean the people in the risk pool get older, then there is nothing do be done because aging is not an insurable event.

      If you mean, that the risks are getting “older” (i.e. higher), and we are approaching a closed-block problem, I think the health-status insurance that is discussed so often in this blog addresses that problem.

      That is, the sicker people do not have an incentive to stay in the shrinking, closing, pool. They can easily move out.

  13. allan (formerly Al) says:

    Uwe I am glad you put “consumer choice” in quotes for with all the government nudging you mentioned earlier the consumer isn’t left with that much choice. In fact the government acts as the magician forcing the cards or insurance upon the unsuspecting individual through the medium of the employer and then some come along and blame the failures of our present system on the market place.