The increased use of catastrophic health insurance coverage could get a boost from the U.S. government’s fiscal woes as it looks to pare down deficit spending including potentially eliminating the tax break employers get for employee health insurance costs. High deductible catastrophic coverage is increasingly a mainstay among the self-employed in the individual health insurance market and is now moving into employer paid insurance. It’s already becoming prevalent among smaller employers with 100 or fewer employees.
Catastrophic coverage works similarly to what was known decades ago as “major medical.” As the name suggests, it covers only high cost care such as hospitalizations and surgeries. Routine doctor visits are paid out of patients’ pockets.
“The idea isn’t to just raise revenue, economists say, but finally to turn Americans into frugal health care consumers by having them face the full costs of their medical decisions,” an Associated Press story today notes. Health care policy wonks have long observed that as long as people’s medical care is largely paid by others — employers, health care service plans and insurers — there is little incentive for patients to be parsimonious when using medical services.
This logic would work if the market for health services functioned as a truly competitive market. Inasmuch as there are many sellers and buyers of health services, the market is nominally a competitive one. But it doesn’t behave as a competitive market. In fact, just the opposite. People tend to remain loyal to their doctors for routine care. And for emergency or non-routine care, the motive is to get treatment quickly and not shop around for treatment options and prices.
Bottom line, the rise in catastrophic coverage isn’t emerging as a remedy to make the health care market more competitive in the hope doing will will drive down prices and bend the cost curve. Rather, it reflects the fact that health care costs have reached a tipping point such that it’s no longer feasible to cover most routine services.
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