Next Health-Care Fight? Out-of-Pocket Costs
Until now, the fight over health-care reform has mostly been a battle over two numbers: how many Americans have insurance, and how much they pay in premiums. It may be time to think more seriously about a third number: out-of-pocket costs.
On Tuesday, the Kaiser Family Foundation released its annual survey of employer-sponsored health plans. The number that will probably attract the most attention relates to the premiums attached to employer plans -- an important figure, since rising premiums eat up money that could otherwise go toward pay increases. The survey shows that 2015 premiums for family coverage were 4.2 percent higher than in 2014, a rise slightly greater than those of the past couple years.
But increasing premiums aren't the most interesting part of this year's report. Kaiser also tracks how much employers and health insurers charge beneficiaries to use their coverage, starting with their annual deductibles -- the amount people have to pay out-of-pocket, above and beyond their premiums, before their insurance kicks in.
If premiums have jumped, deductibles have been strapped to the side of a rocket. The chart below shows that while premiums for single coverage have grown roughly in line with overall health-care costs over the past decade, deductibles have increased almost three times as much. For workers with an annual deductible for single coverage in 2006, the average was $584. This year it was $1,318.
That trend isn't being driven only by the minority of employees with lousy coverage. In 2006, a $1,000 deductible was rare, except for people at small companies. Today, almost half of insured workers face a deductible of $1,000 or more, and for 36 percent of people at small employers the number is twice that high. Moreover, the burden of high deductibles isn't evenly distributed: Companies where more than one-third of workers earn $23,000 or less have deductibles that are 29 percent higher, on average, than companies where fewer workers are paid at that low level.
The appeal of high deductibles is straightforward: Up-front costs deter people from using health-care services, reducing costs. That's not necessarily nefarious; by lowering health-care spending, a company can keep premiums lower, too, and maybe even direct some savings toward other compensation.
But that approach rests on the premise that people will cut back on the care that's least necessary -- which doesn't seem to be what happens in reality. In a November 2014 Gallup poll, one in three people said they had put off medical treatment because of cost; two-thirds of those said the treatment was for a serious condition. Another survey estimated that as many as 16 million American adults with chronic conditions had skipped the doctor because of cost.
Companies are increasingly turning to another justification for higher out-of-pocket costs: Obamacare. The law imposes a so-called Cadillac Tax on high-cost insurance plans, starting in 2018. Deductibles and other cost-sharing don’t count toward the cost, so companies are shifting more of the price of coverage into out-of-pocket payments to avoid the tax.
It's hard to know how much of the rise in deductibles that explains. A separate Kaiser study last month estimated that no more than 26 percent of employers would be subject to the Cadillac tax in 2018. Some employers are almost certainly using the tax as an excuse for out-of-pocket increases they're happy to implement anyway.
Obamacare also includes a cap on deductibles and other out-of-pocket payments. But those caps don’t apply to all plans; and at $6,600 a year for single coverage ($13,200 for family plans), the caps are too high to make a difference to most people.
However reasonable the justification for the shift toward higher deductibles, the move marks a change in the nature of health insurance -- and one that the debate over reform hasn't kept up with. As the share of Americans without health insurance falls below 10 percent, the fight needs to focus just as much on making sure that those who have insurance are able to use it.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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