High Deductible Plans Come With Long-Term Costs
Near the top of the very long list of the things I’m not is a health care economist. But I’m thinking that employers that force workers into high-deductible health plans to save money on their health benefits costs actually may be shooting themselves in the wallet because their premiums will rise faster in the long run.
The thought jumped out at me while I was wading through the latest hospital uncompensated-care figures from the American Hospital Association (AHA). Uncompensated care is the combined cost of charity care and bad debt. Hospitals provide charity care with no expectation of payment. Bad debt happens when they expect to be paid for care but never see the money.
In 2014, hospitals’ total uncompensated-care costs dropped for the first time in 13 years, from $46.4 billion in 2013 to $42.8 billion in 2014 (bit.ly/1PGXqp2), after steadily climbing since 2001.
The most plausible explanation for the abrupt change in direction is the health insurance coverage mandates under the Patient Protection and Affordable Care Act. With few exceptions, the reform law requires everyone to have health benefits. More people are covered, more people have plans that pay for their health care services, and hospitals have fewer unpaid bills. In theory, hospitals would have less cause to raise prices for everyone in order to cover the unpaid bills of a few. By extension, health insurers would have less reason to raise premiums in order to cover the higher prices charged by hospitals for care.
The AHA doesn’t publicly separate uncompensated care into its component parts of charity care and bad debt. But the Minnesota Hospital Association (MHA) does. In its latest community benefits report released to the public, the MHA said its members’ uncompensated-care tab rose in 2014 (bit.ly/24EhbIR). It climbed nearly 3 percent that year, to $589 million. So why is uncompensated care trending down nationwide but up in Minnesota? The answer is skyrocketing bad debt.
According to the MHA’s data, charity care costs dropped more than 25 percent in 2014, to about $163.9 million. But bad debt rose more than 20 percent, to a whopping $425 million and change (see chart).
“The main driver of increasing bad debts is high-deductible health plan (HDHP) amounts owed by patients that go unpaid,” the MHA said in its report.
In other words, people with insurance—perhaps many for the first time—are receiving hospital care but are not paying their share of the bills that aren’t covered by their HDHPs.
HDHPs are the health plan type offered by employers that want a quick fix to their rising health benefits costs. Employers pay less in premiums by covering less and shifting that cost to workers via high deductibles and copays.
According to the latest annual Employer Health Benefits Survey from the Kaiser Family Foundation and the Health Research & Education Trust, 26 percent of all employers offer HDHPs to their workers, with 23 percent of them making HDHPs the only option for coverage (kaiserf.am/1iKCViK).
The average annual premium for single medical coverage through an employer-sponsored HDHP (with a health savings account option) was $5,312 last year, with the employer paying $4,539, or 85 percent, and the employee paying $773, or 15 percent. The average annual deductible was about $2,200, according to the report.
Many hospital administrators won’t eat the bad debt and forgo building a new outpatient care center, buying a new piece of technology or acquiring a physician practice. They will look for ways to replace the revenue lost to a growing stack of unpaid bills caused by the proliferation of HDHPs.
One of those ways will be to raise prices for their services. When they do, insurers will have a reason to raise premiums. And who will pay those higher premiums? More than likely it will be the employers that started the whole thing by trying to save a few bucks by shunting their workers into HDHPs.
One way that your workers can save on their medical bills—and you can save on your premiums—is shopping around for hospitals and doctors that can safely perform medical procedures on an outpatient basis rather than in a more expensive inpatient setting. That’s the takeaway from a new report from the Blue Cross Blue Shield Association that compared prices for four common medical procedures—lumbar/spine surgery, hysterectomy, gallbladder removal and angioplasty (bit.ly/1oB0Ymx). The report is based on an analysis of 43 million claims for the four procedures paid by Blue Cross and Blue Shield plans from 2010 through 2014. (In 2014 alone, the claims totaled $11 billion.) According to the report, Blues-insured patients who had the procedures done on an outpatient basis cut their out-of-pocket cost per procedure by an average of $1,062 for angioplasties, $924 for gallbladder removals, $483 for hysterectomies and $320 for lumbar/spine surgeries. So if you are shunting your workers into HDHPs, you may want to also steer them to providers who can perform the procedures safely on an outpatient basis for less.
In October 2014, we talked about the medical-loss ratio provisions of the Patient Protection and Affordable Care Act and their impact on employers’ health insurance premiums (bit.ly/1VCbV2w). The law requires health insurers in the individual or small-group market to spend at least 80 percent of their premium revenue on medical care for enrollees or on activities that improve the care for enrollees. Health insurers in the large-group market must spend at least 85 percent. Insurers that fall short must rebate the underage to policyholders. According to the latest data from the feds, insurers nationally missed their targets by a collective $469.4 million in 2014 and had to pay that money back in 2015 (go.cms.gov/1QwSlVD). That’s up from $332.2 million in 2013 (paid out in 2014). Notably, though the national rebate total went up, it went down in Minnesota, to zero. As in nothing. Minnesota was one of only four states (the others were Rhode Island, South Dakota and Vermont) in which all health insurers doing business there met or exceeded their targets in 2014 and weren’t required to rebate premium revenues to policyholders. So the next time you think your carrier is price-gouging you to pad its bottom line, it’s not. It doesn’t have to, as it’s turning a healthy profit all on its own. And the next time you need to hire a great actuary, underwriter or accountant, you know where to poach.
David Burda (twitter.com/@davidrburda, email@example.com) is editorial director, health care strategies, for MSP-C, where he serves as the chief health care content strategist and health care subject matter expert.