The (ir)rational consumer and the case for high deductible health plans.

• Author: Mack, Mark

High-deductible health plans (HDHPs) have become a prominent feature in the landscape of American health care. In 2003, only 1 million people were covered by HDHPs; by 2014, that number had grown to nearly 17 million. Sixty percent of large private employers now offer HDHPs. (1)

Part of the reason these plans have become so popular is that they clearly reduce the employer's cost of providing health benefits to the workforce. Employers can realize hard-dollar savings quickly compared to programs like wellness initiatives. A recent survey showed that HDHPs have provided lower annual premium costs for employers--about $1,000 (18 percent) lower for individual employees and $1,500 (12 percent) lower for families, compared to traditional plans. (2) Further, evidence suggests that HDHPs reduce costs for employees, with HDHP participants reducing their healthcare spending by 5 to 14 percent after the switch. (3)

The problem is that these savings are not necessarily obvious to employees as they scrutinize their health benefits options. By definition, HDHPs have a high deductible (usually between $6,000 and $10,000 for an individual, and $15,000 and $20,000 for a family (4)), which puts the onus on the plan participant to make cost-conscious decisions about using health care. This approach runs counter to (more familiar) traditional plans, which have relatively low (or no) deductibles and co-pays, obscuring the true cost of medical services from the plan participant. Employees tend to stick with the status quo unless they see a clear and compelling reason to switch.

But plan sponsors need to be sure they're looking at the big picture. In theory, a higher deductible will lead the participant to forego unnecessary care and to choose more efficient providers when care is needed, but studies have not shown that these reductions are rational and well-researched choices. One study showed that HDHP participants indiscriminately reduced their use of all care, (5) and another indicated that HDHP participants with chronic conditions moderately reduced their adherence to prescription drug regimens, especially for asymptomatic conditions such as hypertension and high cholesterol. (6) Studies have also failed to prove conclusively that patients with HDHP plans switch to lower cost providers; one study (which examined only prescription drugs) showed only a small shift toward generic and mail-order alternatives. (7)

These findings are even more of a concern because most studies of HDHPs were conducted years ago, when the total number of participants was relatively small and, research has found, made up of employees who tend to be more knowledgeable and conscientious about their health than the average patient. (8) These individuals were therefore more likely to make better-than-average choices. As employers expand the number of participants in HDHPs, enrollees are likely to include those who are not knowledgeable and conscientious early adopters. Moreover, research has shown that over time, HDHP participation does not increase participants'...