HDHPs cut employer costs but for wrong reasons

Do high deductible health plans really make employees smarter consumers of medical services? Don’t count on it.

A recent study concluded that employees with HDHPs generally stick with the same providers (i.e., they’re not looking for less costly services), and simply refrain from obtaining medical services. And even when they can reasonably expect to exceed the plan’s high deductible, few make rational decisions in light of that information.

Also see: Expanding HDHP coverage of preventive services could benefit millions

These findings suggest HDHP sponsors, as well as employers considering making that switch, should review their employees’ health care purchasing patterns and their communication campaigns to encourage employees to use the plan appropriately.

The study is titled, “What does a deductible do? The impact of cost sharing on health care prices, quantities and spending dynamics.” 

‘Excellent opportunity’ for study

The data underlying the study came from reviewing the medical claims and spending patterns of more than 150,000 dependents and employees of one large employer that had moved from a PPO plan with no deductibles, to a HDHP. The provider network did not change under the new plan, thus the change “presented an excellent opportunity to assess in detail how consumers respond to markedly increased cost-sharing,” according to Benjamin Handel, one of the study’s four co-authors. Handel is a member of the faculty of the University of California’s department of economics, and also affiliated with the National Bureau of Economic Research.

Here are some of the study’s key findings:

• The shift to the HDHP reduced the employer’s annual health care spending from $750 million to $608 million – a 19% drop;
• The biggest spending reductions were by the sickest employees, a fact Handel found “especially notable” in light of the fact that the employees at the company have “relatively high incomes” and the family deductible was $6,500;
• Reduced spending had no impact on prices charged by medical providers, which means the entire drop in the company’s health care spending is attributable to reduced employee utilization of the health care system; and
• Reduced spending was in all medical service categories, “from low value to high,” suggesting a lack of differentiation based on the likely value of those services.

Employee misperceptions

The study determined that many employees were holding back on purchasing health care services before they had hit the maximum deductible, but then accelerated spending once they had hit the deductible. “In other words,” Handel reported, “many consumers, whose true marginal price for care throughout the year is essentially zero because of their impending high spending, don’t treat incremental care as free when under the deductible.”

Also see: OGE employees overcome negative perceptions of HDHP

“This suggests that they misperceive their own health risks, misperceive how much medical care costs or don’t understand how the high deductible insurance contract actually works,” he added.

Handel believes a more effective way to bring costs down, which won’t cause employees to make inappropriate health care purchasing decisions, is to “focus on supply-side interventions that target physician incentives or interventions that reduce the use of high-cost, low-value medical technologies.”

Richard Stolz is a freelance writer based in Rockville, Maryland.