Complaints over high deductibles call into question future of individual medical insurance

President Donald Trump’s complaint that high deductible medical insurance plans are a bad deal because people can’t use them to cover medical expenses subject to the deductible reflects a fundamental conceptual conflict over medical insurance. Here is what Trump had to say in a Sunday interview with the CBS News program Face the Nation:

We’re going to drive down deductibles because right now, deductibles are so high, you never — unless you’re going to die a long, hard death, you never can get to use your health care–because the deductibles are so high.

Insurance is a mechanism to transfer and share risk. In the case of high deductible medical insurance plans, the risk is high medical bills exceeding the deductible amount is transferred to the plan issuer. The idea of the deductible is that the insured assumes some level of risk. It’s not intended to be “used” or otherwise consumed in exchange for paying a premium. In fact, this mindset can even drive up utilization since people will be motivated to burn through the deductible in order to get their plan to begin paying their medical bills.

Underlying this perception is the transition in the 1970s and 1980s from “major medical” coverage – a true insurance offering designed to cover catastrophic medical costs – to prepaid managed care plans. These are not pure insurance products but are hybrids. The plan assumes a degree of risk of catastrophic care needs such as a major injury or illness. But it also is designed to cover everyday primary care needs. The proliferation of managed care plans and particularly integrated plans where the plan’s own staff providers provide medical care naturally have led people to expect not to have to pay much if anything out of pocket for relatively lower cost care. To them, that’s consuming the coverage they paid for, particularly since the plans they purchased include primary care as they must under the Patient Protection and Affordable Care Act.

When their individual medical plan doesn’t permit that until they’ve racked up several thousand dollars of medical expenses, from their perspective their premium dollars have been wasted even though those premiums insulate them against the risk of large medical bills. However “large” is relative. In a period of declining widespread economic prosperity, medical bills of several thousand dollars that aren’t covered because they fall within the deductible limit are indeed seen as forbiddingly large. Ironically, they even lead to personal bankruptcy – something insurance is specifically intended to prevent.

Ultimately, public policymakers are faced with a question far larger than repairing or replacing the Affordable Care Act. The question is whether financing medical care with an individual or non-group insurance plan makes sense both from an actuarial and public perception standpoint. Or whether it should be a publicly financed mechanism paid though self-employment and income taxes.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email or call 530-295-1473. 

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Frederick Pilot


  1. Patrick J Pine

    Good summary of the fundamental issue involved here. There is another perception problem here.
    In many companies, there has been a tendency to provide additional benefits to top executives compared to line staff. This may take the form of a lower deductible and/or employment contracts providing that COBRA will be paid if executive leaves or perhaps other preferences such as paying for services like chiropractic, dental, vision for exec but not line staff.
    People see these kinds of differences and wonder why they pay a higher deductible than an executive paid many times the line staffer’s pay.
    Finally, as the tax code has reduced the ability to itemize all out of pocket costs to now mostly only costs exceeding 10% of pay, the higher deductible does not necessarily do anything to help people meet the minimum out of pocket threshold to qualify for the tax exempt treatment.
    In other words, higher deductibles are usually promoted by employers and their consultants – never by employees and their family members.

    1. Frederick Pilot (Post author)

      Thanks for your comment. The scope of this post is the individual (non employer group) market.

  2. Patrick J Pine

    While you do focus on individual market – these perceptions are often gained in the group markets by persons who were in that market previously – or by family members, friends or coworkers who complain about deductibles. That perception carries over when the person is in the individual market.

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