The enduring stupidity behind High Deductible Health Plans | by Marshall Darr | Sep, 2021

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Surprise, surprise, America’s most popular health insurance plan design is fundamentally flawed.

Marshall Darr
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Before we get going: who am I?

My name’s Marshall and I’ve worked in the health insurance industry (or adjacent) for the better part of a decade. Currently I’m the VP of Sales and Marketing for Decent. I’ve sold a lot of health insurance plans, even helped design several and there’s nothing that annoys me more than the recent growth in popularity of high deductible health plans.

Give me 10 minutes to read this article and you’ll be just as mad as I am.

First things first: what is a deductible?

A deductible is an amount of money that a member of a health plan pays out of pocket before their insurance kicks in to cover some amount of the remaining cost.

These emerged initially as a way to incentivize shopping behavior among health plan members with the hope that financial pressures would encourage them to look for providers with lower rates. Basically, if you have to choose between a $500 MRI and a $15,000 MRI, your health insurance company would very much prefer that you picked the $500 one. A deductible is a way to encourage that decision by sharing the financial liability with the member.

The basic logic is: the higher your deductible is, the more you’ll shop around, and the more you’ll save yourself and the insurance company. Therefore the higher your deductible is, the lower your health insurance premiums can be. Since you’re a good shopper (of course you are, look at you!), you’re going to cost less for the company to insure so it’s only fair you pay less.

The logic behind this plan design caught like wildfire.

There’s truly nothing that armchair economists love more than the introduction of personal responsibility into complex financial systems but there’s one exceedingly obvious problem with this thinking…

Where it all breaks:

Patients don’t know how much they’re going to pay for medical services until after they receive the bill.

It is impossible to be an informed shopper if you don’t know the prices you’re shopping between. That’s kind of the whole point of shopping behavior.

And before you think to yourself, “well, people should just call the providers before they get a service to find out what it might cost in advance,” there are two big reasons why that doesn’t make sense either.

1. That’s not how emergencies work.

Often times individuals using their insurance for large purchases are doing so because they’re medically incapacitated or at the very least, uncomfortable.

2. Even in nonemergency environments medical billing is stupidly, if not maliciously, complex.

Different insurance companies have different negotiated rates with different providers that are almost always in flux. Not only that, but different health insurance plans at these insurance companies have dozens if not hundreds of different ways the payment is actually going to trickle down to the individual on that procedure. That’s not even getting into the member’s annual progress towards their deductibles or out of pocket maxes.

An MRI at a single provider could wind up having thousands of different potential prices billed to the shopper due to these factors.

There’s so much going on here that your odds of receiving an accurate quote on a medical procedure from a willing provider (which is not a given, these rates are one of the most closely protected secrets in the medical industry) are almost nonexistent.

This means people can’t reliably “shop” for their medical procedures

On average — only about 14% of people on High Deductible Health Plans engage in any shopping behavior at all (and those that do, don’t report feeling very effective at it).

It’s hard to overstate what a bad idea outsourcing the burden of reducing healthcare costs from industry experts to the untrained general public was and is. People who have dedicated their careers to reducing the cost of care consistently fail to do so — what hope do people who were, at best, asked to sit through a 45 minute long presentation from a health insurance broker?

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