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  • Steven Corn

Higher Deductibles - The Black Hole of Coverage

In a recent post on Health Leaders Media, there was an interesting argument presented that these higher deductibles will backfire on insurers.  The idea is that as deductibles continue to climb, people will feel that they are not really benefiting from having insurance policies.  They will make decisions on health care based more and more on financial impact as opposed to health.  This in turn will force many people to not spend money on less critical health conditions. 

"The problem with high deductible health plans is you are shifting the decision making to the least informed, which is the consumer," says [Mike Ducote, chief operating officer of CirraGroup, a company that assists consumers with healthcare debt resolution]. "We're having to make these calls purely based on the dollars. I don't think that's a good recipe for success."

What does this mean?  Avoiding treatment for less severe medical issues can often lead to serious complications requiring even more extensive treatment.  So instead of reducing the costs of medical spending in our country by catching and treating illnesses at an early stage, higher deductibles are actually contributing to higher medical costs.

This is a nasty Catch-22.  To bring insurance costs down, deductibles continue to rise.  But these could create higher medical spending by discouraging early treatment.  Such higher spending will make the insurance companies look to contain their costs.

How do they do that? Increase deductibles and raise premiums.

Mandated coverage under the ACA was supposed to fix this due to the penalties for not having coverage.  The calculation can be complicated.  But in some cases, as detailed here, it can be cheaper to pay the penalty than it is to have coverage with a high deductible.  The number of such cases is likely to increase as the deductibles continue to rise.  If so, then this would create the very black hole of health insurance that everyone is trying to avoid.  

So, when deductibles are so high that it feels like a person doesn't have any coverage at all, then the consumer demand for such policies will decrease.  Higher deductibles may seem like a viable cost containment strategy when, in fact, it could backfire on insurers in a big way.

I'm sure most people would consider it a victory if deductibles and premiums just stayed where they are without any increases.  It would be more of a victory to consumers if deductibles fell even if premiums rose.  Hopefully there will be some smart people at the insurance companies to realize the diminishing returns of higher and higher deductibles.

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