NCPA - National Center for Policy Analysis

How High Deductible Plans Lead to Low Health Care Spending

June 11, 2012

The Centers for Medicare and Medicaid Services (CMS) just released their latest estimates of national health care spending over the past few years, and they seem to provide some rare good news.  Researchers determined that total U.S. health costs are increasing at a slower rate than any time in recent history, says Sally Pipes, president of the Pacific Research Institute.

The Obama camp is quick to emphasize that the relative savings are the direct result of the policies of the health care reform law.  However, this is far from the truth.

  • Health care costs started to plateau well before Obama's health reform plan began taking effect, cooling off since 2002.
  • Rather, the trend closely tracked the spread of consumer-directed health plans: high-deductible coverage options that give people control over their health care dollars and provide a direct financial incentive to conserve care and spend responsibly.
  • The year 2002 was also the year that employers started embracing high-deductible health insurance plans for their workforces, which subsequently took off in the mid-2000s.
  • Between 2006 and 2011, the share of American workers enrolled in one more than quadrupled, from 3 percent to 13 percent.
  • As of January 2011, 11.4 million Americans were enrolled in consumer-directed health coverage -- a 14 percent increase over the 2010 total.

The plans are coupled with Health Savings Accounts (HSAs), which allow people to save pretax income to be spent exclusively on health care.  The insurance policies kick in once the annual deductible is reached, to protect patients against health catastrophes.  Together, high-deductible plans and HSAs give patients the incentive to use some common sense when shopping for health care.

Unfortunately, HSAs and consumer-directed health plans are unlikely to survive the implementation of the health care law.

  • The law's minimum "medical loss ratio" requires that insurers devote no more than 20 percent of premium income in the individual and small-group markets toward administration.
  • It also requires insurers to meet minimum "actuarial value" standards, whereby they must cover a certain percentage of a beneficiary's health expenses -- at least 60 percent, in most cases.
  • Because of the nature of their premiums and deductibles, HSAs are unlikely to be able to meet these blanket requirements.

Source: Sally Pipes, "How High Deductible Plans Lead To Low Healthcare Spending," Forbes, May 28, 2012.

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