“There was a friend of mine growing up, call him Tom, whose father was a health insurance executive. Once a month or so, he’d come for dinner and sleep over because his Dad was just in a foul mood, would go upstairs, not be able to cook, and not want to talk to anyone. I asked Tom why his dad had so many bad nights, and he’d explain that his father was a health insurance executive. I didn’t get it at first. Finally, when Tom was about 16, I asked him to explain this matter further. What causes his father’s bad nights? Tom laid it out straight: ‘Those are the days when Dad saves a man at work.’ “ — Unknown American origin.
As the medical insurance and healthcare picture in the U.S., despite the best intentions of at least a few left-leaning policymakers, continually gets worse over the decades, it’s becoming common that health insurance plans have high deductibles, sometimes as high as $10,000 for a family if one needs to go “out of network”. Moreover, given that health insurers will just decide not to cover things because some college dropout or failed-into-the-dark-side doctor decides that a treatment is “not medically necessary” (against the word of an actual fucking doctor) or a “lifestyle” treatment, even “out-of-pocket maximums” can’t always be trusted. Being “insured” means less by the day.
All of this said, for young and relatively well-off people, these high-deductible plans with HSAs seem like a good deal. On paper, taking one can be a reasonable bet, and if there were a way guarantee that they covered all medical expenses, I might agree. If you have a few thousand dollars or more in the bank, and you’re not likely to get sick, then you’re probably only giving up a few hundred dollars in expectancy by taking the high-deductible plan. So what goes wrong? What is the unexpected and systemic issue with high-deductible plans?
Libertarians like the idea of high-deductible plans insofar as they encourage patients to respond to economic signals when choosing treatments. While this appears to be a fine idea (on its own terms, that is) on paper, there are a number of issues with it. Free markets work well at solving a large number of pricing problems, but healthcare has extreme time behavior that other markets don’t. An issue that costs $500 to treat now might cost the patient, or society, $100,000 in a year if untreated. Markets work best when short-term signals reflect long-term conditions, and poorly when there’s a severe discrepancy between the two. Second, there’s a huge information asymmetry for patients, who simply don’t know enough to make informed decisions. Most patients would do better to trust their doctors than to try to make every single medical decision for themselves. This means that exposing patients to “price signals” is at best pointless and, at worst, dangerous. Due to the already-mentioned time behavior of most medical problems, by “dangerous” I also mean “expensive”.
What goes wrong with high-deductible plans? It’s not that deductibles are inherently a bad concept. They apply to auto insurance policies and are generally pretty harmless. The problem with high-deductible plans is this: while insurance companies are trypophobia-inducing clusters of assholes, the “good” news is that they’re assholes to hospitals and medical billing departments as much as to patients, and they have leverage, and they twist arms, and they get prices down. The result of this is that medical bills assessed to fully insured people are about a third as high as those assigned to the uninsured. The medical industry has high fixed costs, and no one knows what a service “should” cost, and uninsured or underinsured patients are so unlikely to pay (and, quite often, unable to pay) that billing departments will just plain price gouge. It’s ridiculous and perverse, and it’s questionable whether it should even be legal to set fees after a service is rendered. Hotels, restaurants, and transportation agencies have to set a price before the consumer makes a decision, but hospitals get to make up numbers after the service is rendered, resulting in absurdities like $250 charges for “mucus collection system” (in non-asshole language, a Kleenex). The only check against this are the health insurance bureaucrats. While they’re clearly motivated by corporate greed rather than good intentions, this class of people indirectly benefits policyholders by knocking prices down reducing premiums.
If we accept that insured patients pay medical bills indirectly, then at least the insured patient has an asshole on his side in negotiation with medical billing departments. The insurer will say, “accept this price or you’re ‘out of network’ and will get fewer patients”. As an individual, though, no patient can say “reduce the damn bill or I’ll never get appendicitis in your ER again”.
The problem with high-deductible plans is that, when a young person insured under one gets sick and incurs a mid-sized bill (say, $1500) the insurer has no incentive to engage in the arm-twisting (arm-twisting that is directly responsible for slashing insured patients’ bills by 60 to 80%, and that you will miss dearly, should you have to pay a medical bill directly) that they absolutely would do if they, as insurer, were paying the bill. (This is different if the insured person is frequently sick and likely to overflow the deductible on a regular basis; but until recently, people like that couldn’t even get insurance.) Don’t get me wrong: I’m not pro-arm-twisting in general. I’d like to see doctors and nurses and medical technicians fairly compensated, not driven to the bottom. In fact, I’d much prefer to re-join the First World and replace our rotten system with a public-option or single-payer system. I’m only saying that, as an individual, I’d prefer to have an asshole arm-twister negotiating my bills down rather than not have one.
High deductible health insurance would be a reasonable idea, and appealing to high-income young people like me, if there were some way to guarantee that the insurer would negotiate just as aggressively as if the deductible were zero and the insurer were paying the bill in its entirety. Unfortunately, I am not aware of any way to enforce that.
