Tag Archive: major medical

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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Key factors driving perception of poor value in individual health insurance market

The law “requires you and each member of your family to have qualifying health care coverage (called minimum essential coverage), qualify for a coverage exemption, or make an individual shared responsibility payment when you file your federal income tax return,” the tax agency says on its website.

Some consumers who buy insurance on the exchanges still feel vulnerable. Deductibles are so high, they say, that the insurance seems useless. So some feel that whether they send hundreds of dollars to the I.R.S. or thousands to an insurance company, they are essentially paying something for nothing.

Obama administration officials say that perception is wrong. Even people with high deductibles have protection against catastrophic costs, they say, and many insurance plans cover common health care services before consumers meet their deductibles. In addition, even when consumers pay most or all of a hospital bill, they often get the benefit of discounts negotiated by their insurers

Source: Health Law Tax Penalty? I’ll Take It, Millions Say

Perception as political pundits often say is reality, particularly so when it comes to pocketbook issues. At the root of this perception is the more generous HMO plans that came about in the 1970s and 1980s that offered little or no out of pocket costs. That conditioned consumers to think of health insurance as pre-paid medical care rather than an insurance product. High deducible plans by comparison are predicated on a basic principle of insurance: to cover the risk of high and unexpected costs — and not to protect consumers from paying out of pocket to see a medical provider for routine care.

So not surprisingly, plans that come with high deductibles are seen as a poor value since consumers aren’t going to see any of their premium dollars returned to them unless they need high cost care such as hospitalization. Back in the pre-HMO days of the 1950s and 1960s, hospitalization and other “major medical” costs as health insurance policies were termed then was the main point of coverage and not primary care physician office visits. Hence, those policies came with high deductibles that were only triggered by high cost care.

A closely related perceptual problem with the return of the major medical model and high deductibles relates to high premiums for high deductible plans. That violates the established expectation of a tradeoff for accepting higher deductibles in exchange for lower premiums since less first dollar risk is being assumed by health plans. This is a huge issue for consumers in the individual market in age rating bands 50 and older but whose household incomes exceed 400 percent of federal poverty levels, thus disqualifying them for tax credit subsidies offered for coverage purchased through state health benefit exchanges. It has led to proposals such as allowing fifty somethings to buy into Medicare earlier than the minimum eligibility age of 65.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Paying cash and negotiating price: Will it reduce the cost of health care and coverage?

Many of us now have high-deductible health insurance plans, which makes us “cash-pay” patients until we meet our deductibles. According to a Health Affairs health policy brief, high deductible plans are now much more prevalent in both individual and group markets.The higher the deductible, the lower the monthly premium. If you have a high deductible plan and don’t consume much medical care, you are most likely a cash pay patient. You might even avoid medical care because of the out of pocket cost. I know I have.I talked with a friend yesterday who has a $9,000 deductible. She has a torn meniscus. She is avoiding the surgery because she isn’t even close to hitting her plan’s deductible. I suggested she try asking for a “cash pay” price from her surgeon and the hospital or surgery center where her procedure would be performed. Negotiating cash pay prices for medical treatment has become a common practice. Often a cash-pay price for medical care can be much less than what you’d have to pay if you haven’t met your deductible.

Source: How cash-pay patients can beat high-deductible plans

The strategy of paying cash for medical care to get a better price originally appeared in The Los Angeles Times and is getting legs elsewhere such as here. That’s the way it was back in the 1950s and 1960s where people had “major medical” insurance that covered only large and unexpected medical care needs such as auto accidents and heart attacks. Everything else was paid on a cash basis.

Going forward, it bears watching to see if this gains momentum among those covered by high deductible plans. If it does, it could create downward pricing pressure on non-emergency medical procedures including primary care visits that aren’t preventative care and thus subject to out of pocket cost sharing.

Ditto high deductible plan rates. If more people pay providers directly rather than engaging in the paperwork exercise with their health plans for care falling well below their annual deductible, that reduces the administrative burden on the issuers of high deductible plans. As well as providers willing to negotiate a cash price knowing they’ll get paid sooner with less paperwork.

There’s an added bonus for high deductible plan members. At one time, having a high deductible plan meant a broader choice of providers. No longer the case with today’s narrow networks. Paying cash can potentially substantially widen the provider network to any provider willing to accept cash as payment in full for services.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Health insurance, disrupted: Direct cash payment for services

As consumers get savvier about shopping for health care, some are finding a curious trend: More hospitals, imaging centers, outpatient surgery centers and pharmacy chains will give them deep discounts if they pay cash instead of using insurance.

Source: How to Cut Your Health-Care Bill: Pay Cash – WSJ

This Wall Street Journal article discusses a trend worth watching that has the potential to significantly disrupt the payer and provider relationship, particularly for high cost elective procedures. The WSJ item explains the market forces driving it:

  1. Hospitals and other providers seek higher reimbursements from commercial health plans to make up for lower reimbursements for government programs such as Medicare and Medicaid.
  2. Higher reimbursements drive up commercial plan premiums, pushing more consumers into high deductible plans with lower premiums.
  3. High deductible plans make consumers much more price sensitive since they are responsible for paying a large percentage or all of the cost of sub-catastrophic care.
  4. Price sensitive consumers are highly receptive to deep cash discounts offered by providers — undercutting contracted health plan reimbursement rates that they would otherwise pay out of pocket — and willing to forgo credit toward their calendar year deductibles to obtain the discount.
  5. Online price comparison services spring up, reinforcing and expanding the direct cash pay health care market.

In essence, these market forces are combining to partially disintermediate commercial health plans in the current payer-provider scheme. This is a profound trend that may accelerate a shift back to days of “major medical” coverage, reforming insurance to a true insurance product designed to cover very high cost, unexpected and catastrophic events like serious injuries sustained in traffic accidents and heart attacks rather than routine care and elective procedures.

If the trend of direct cash payment for sub-catastrophic care grows, it will run counter to the Affordable Care Act’s requirement that individual and small group health plans include ambulatory (outpatient) services as an essential health benefit. If people covered by high deductible, consumer directed plans are paying directly out of pocket for this level of care, it will naturally raise questions as to the value of including it as a commercial health plan benefit, further disrupting the traditional payer-provider relationship.

Provider discounts for direct patient cash payment for services falling within health plan deductibles could also set off broad price deflation in medical services.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Do You Speak Health Insurance? It’s Not Easy : Shots – Health News : NPR

“We’ve created a monster, and it’s not surprising to me that there’s literacy issues,” says Kathleen Call, a professor in the University of Minnesota School of Public Health. “I’ve studied this stuff, and sometimes I make mistakes.”Call has grown increasingly concerned that the complexity of insurance could compromise public health by keeping people away from the doctor.”People are treating it more like car insurance: You don’t use it until something happens,” she says. “You have an accident, then you use it. Otherwise you’re trying not to use it. And that’s not the way we want health insurance to be used.”

Source: Do You Speak Health Insurance? It’s Not Easy : Shots – Health News : NPR

Call’s comment concerning people not wanting to use their health insurance coverage touches upon a deep philosophical split over what it should be in the Affordable Care Act era. In the age of the health maintenance organization that came about in the 1970s and 1980s, HMOs were a hybrid product consisting pre-paid primary care and protection for high cost care such as major accidents and medical events. Before the HMO, there was major medical coverage that covered only the latter with the patient paying out of pocket for the former.

Today, the United States is shifting back to pre-HMO days. Instead of major medical coverage as it was called in the 1950s and 1960s, we now have high deductible or consumer driven plans. With rising health care costs, the all inclusive HMO plans with little in the way of out of pocket costs are no longer feasible. The problem is people still remember these rich HMO plans of the recent past and see high deductible plans as a poor value by comparison — or even valueless as they were described in a recent New York Times story.

The NPR item featured here makes the case for a simplified high deductible policy resembling the major medical coverage of the past, with a flat deductible of say $2,500 and a 20 percent coinsurance level. And automatically health savings account compatible.

That would be a true insurance product since it would cover large, unexpected medical expenses. Since patients would be responsible for care costs incurred below the deductible, these plans would reduce health plan issuer administrative costs involved in processing reimbursements for lower cost care events and the burden of keeping practitioner directories updated. It also dovetails with the consumer trend of convenience-oriented primary care delivered at retail and employer-sponsored clinics, online and through pre-paid arrangements.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Many Say High Deductibles Make Their Health Law Insurance All but Useless – NYTimes.com

But in interviews, a number of consumers made it clear that premiums were only one side of the affordability equation.“Our deductible is so high, we practically pay for all of our medical expenses out of pocket,” said Wendy Kaplan, 50, of Evanston, Ill. “So our policy is really there for emergencies only, and basic wellness appointments.”Her family of four pays premiums of $1,200 a month for coverage with an annual deductible of $12,700.

Source: Many Say High Deductibles Make Their Health Law Insurance All but Useless – NYTimes.com

Americans are having a difficult time adjusting to the new, old “major medical” health coverage of the 1950s and 1960s characterized by high deductible health plans that are rapidly increasing among individual and employer-paid health coverage. For decades starting in the 1970s, “health insurance” was managed care HMO plans that functioned as pre-paid medical care for lower cost care as well as insurance in the traditional sense of the word cover unexpected, high cost events such as accidents and heart attacks requiring surgery and hospital stays. (The California HealthCare Foundation recently issued an updated interactive chart showing the shift from cash to private insurance paid physician and clinical services from 1960 through 2013.)

Now it’s more just plain insurance as it was in the pre-HMO days. Americans are once again paying directly out of pocket for routine and minor care. And they’re not happy about it as this story illustrates. It doesn’t jibe with their expectations relative to the fourth word of the Patient Protection and Affordable Care Act: affordable.

Aside from the difficulties associated with going “back to the future” with major medical plans, people are likely to have a difficult time grasping the value of paying a high premium for catastrophic coverage. They are naturally going to figure if they’re covering what’s known in health insurance as “first dollar” care costs until the deductible limit kicks in, then the premium should be quite low since that is where most of the utilization occurs. It shouldn’t approximate the amount of a monthly housing payment as in the example above. What’s telling here is Ms. Kaplan’s age. The Affordable Care Act allows the use of age as a factor in setting premiums. Once people reach age 50, premium rate-wise the individual health insurance market can be nearly as unfriendly to over 50s as it was before the Affordable Care Act market reforms took effect in 2014.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Why high deductible individual plans rated a poor value

A Kaiser Family Foundation survey published Thursday of people who buy insurance in the non-group market found that while many people may choose higher-deductible plans so they can pay a lower premium, they aren’t all that happy about it. It may just be the only way they can get a premium they feel they can afford.As the chart above shows, 37% of people with high-deductible plans described their plan as an “excellent” or “good” value for what they pay, compared with 68% of people with lower-deductible plans saying the same. A high deductible was defined as $1,500 or more for an individual and $3,000 or more for a family. Sixty percent of those with higher-deductible plans rated the value of their plan as “fair” or “poor.”

Source: The ‘Value’ Trade-Off in High-Deductible Health Plans – Washington Wire – WSJ

A couple of observations re this item by Drew Altman, president and CEO of the Kaiser Family Foundation:

1. The U.S. is moving back to the future and toward the “major medical” model of the 1950s and 1960s. Those plans were high deductible plans by design because they covered large and unexpected medical expenses. Routine care was paid out of pocket. Since the advent of all inclusive, HMO-style plans in the 1970s and 1980s, people have become accustomed to not paying for this level of care directly out of pocket. Hence, today’s high deductible plans are likely to be seen as providing poor value for the premium dollar spent.

2. For generally healthy people age 50 and older who ensure their health by maintaining healthy lifestyle habits, the amount of the premium they are asked to pay for high deductible plans seems like a poor value. Since they are effectively self insuring for the first several thousand dollars of medical care they might use in a calendar year, the relatively high premium charged for a high deductible plan doesn’t seem like a fair tradeoff that takes into account their efforts to reduce their likelihood of utilizing medical care. This is particularly likely to be the case for healthy over 50s who earn too much to qualify for advance tax credit premium subsidies for high deductible plans sold on state health benefit exchanges.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Health insurance returning to traditional role of covering unexpected, high cost care

A basic insurance principle is returning to health coverage: mitigating the financial risk of a major, unexpected or accidental need for medical care. That’s how it worked in the period immediately following World War II, when health insurance was termed “major medical” and designed to cover high cost care such as injuries resulting from accidents or a medical crisis such as a heart attack or stroke.

The big driver of the change: sharply rising premium rates over the past decade. Costly premiums are driving people to choose plans with more cost sharing and the lower premiums that come with greater cost sharing such as deductibles, co-pays and co-insurance. Even when premium rates are subsidized, 85 percent of those purchasing individual plans sold on state health benefit exchanges in 2014 chose bronze and silver rated plans over higher priced gold and platinum rated plans that have less cost sharing. Bronze and silver rated plans cover 60 and 70 percent, respectively, of expected annual health care costs while gold and platinum, 80 and 90 percent.

The upshot of these less generous plans is people will become less inclined to view health plans as pre-paid medical care and more as insurance for medical financial emergencies. It’s back to the future of major medical plans of the 1950s and 1960s – a reversal of the all-inclusive managed care plan trend that began in the 1970s and 1980s.

A consequence is likely to be less wasteful utilization of primary care for issues that typically clear up on their own such seeking an antibiotic prescription for a minor cough. That’s a highly beneficial development amid widespread concern of a looming shortfall of primary care physicians at the same time more people gain medical coverage under the Affordable Care Act.

Related trends are the rise of cash paid primary care options including prepaid direct primary care physicians and clinics, retail and drugstore clinics and companies offering quickly accessible online telehealth consultations. These services provide consumers convenient care within and outside of normal business hours without the need for an appointment plus reduce the uncertainly of whether a particular primary care visit will be covered by their health plan. Also, tax advantaged health savings accounts that allow money to be set aside to pay for minor care.

All of this fits nicely into the growing ethos that wellness is a personal responsibility that for the vast majority of people is secured with healthful lifestyles rather than frequent engagement with medical providers.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

High out of pocket costs for major medical care warrant policy scrutiny

The cruel paradox of those with health insurance seeking bankruptcy protection from high medical bills could grow despite the policy intent of the Patient Protection and Affordable Care Act to expand the safety net of individual health insurance.

It’s most likely to occur in the case of hospitalizations where multiple health care practitioners attend to an insured patient and only some of them are in the patient’s health plan provider network. The patient is then placed in the situation where his or her insurance plan isn’t subject to the calendar year out of pocket maximums ($6,350 for individuals; $12,700 for family coverage) that apply only for care rendered by providers in the plan’s provider network, potentially exposing patients to significantly higher bills. Emily Bazar of the California HealthCare Foundation (CHCF) details one such instance involving a plan purchased through California’s health benefit exchange marketplace, Covered California, in her Sacramento Bee column.

This circumstance warrants study by the CHCF and other policy research organizations since it could occur nationwide. If such incidents increase, it could lead to calls for policy changes that make available all inclusive major medical coverage for hospital stays and other types of high cost care. Limited provider networks may be able to work fine for routine care like physician visits and exams, but can potentially leave major gaps for catastrophic care.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Little noticed ACA provision may hold key to restoring primacy to primary care to bend cost curve

Witnesses at a recent California legislative committee hearing bemoaned what is well known among health care policy wonks: poor access to primary care and its relationship to complex, chronic conditions that drive the 80-20 rule on health care spending: that 20 percent of patients account for 80 percent of the health care spend.

An excerpt from the California HealthCare Foundation’s California Healthline report on the hearing:

“We need to look at better management of chronic conditions,” said Assembly member Richard Pan (D-Sacramento), chair of the Committee on Health. “It’s one of the greatest cost factors in our health care system.”

How much cost?

The numbers are “astounding,” according to Sophia Chang, director of the Better Chronic Disease Care Program at the California HealthCare Foundation and one of the panelists at yesterday’s hearing. CHCF publishes California Healthline.

“We’re dealing with an epidemic,” Chang said. “Growing numbers, growing costs.”

The article goes on to quote testimony by Kevin Grumbach, chair of family and community medicine at UC-San Francisco:

“All this talk about chronic care and the patient-centered medical home is fundamentally about the primary care foundation of a well-functioning health care [system],” Grumbach said. “Systems that are built on a solid foundation of primary care are much better able to deliver the triple aim of better care, better outcomes and lower cost, and in an equitable way.”

Unfortunately, he said, California’s primary care system “is completely topsy turvy,” he said.

A little noticed provision of the Patient Protection and Affordable Care Act could contain the means of restoring the primacy of primary care and putting health insurance into the more logical and sensible role of covering large, unexpected medical costs.  It allows state health benefit exchanges to offer qualified health plans (QHPs) that are bundled with primary care directly paid by the insured, not the QHP. These “Direct Primary Care Medical Home Plan” QHPs would logically be those offering lower actuarial value (such as the “bronze” and “silver” metal tier plans that cover 60 and 70 percent, respectively, of expected claims costs).

Such a product could offer real benefits for both individuals and small businesses purchasing coverage in the exchanges starting this fall as well as for health plan issuers.  The former would benefit from lower premiums since they would be purchasing a lower cost plan. Health plans would benefit because insureds that pay for their own primary care – likely through pre-paid primary care contracts with primary care doctors and clinics – would have access to primary care and lifestyle coaching to ward off the development or progression of chronic conditions.  And primary care providers would also benefit by pre-paid direct primary care plans since they would provide a degree of predictability to their business models and potentially attract the large number of new primary care physicians that will be needed by the many newly insured under the ACA. That sounds like a promising means to achieve Grumbach’s triple aim.

Plan issuers, however, might initially resist offering such Section 1301(a)(3) plans since they would require them to retool their plans to be more like the “major medical” plans that predominated in the United States until all inclusive managed care plan models covering primary care proliferated beginning in the 1970s. But amid relentlessly rising medical costs that threaten their current business models and the opportunity presented by the new exchange marketplaces to devise new plans, now may be the right time for them to adopt DPC-based plans. Such plans might be marketed as “DPC (Direct Primary Care) compatible” just as high deductible plans are termed “HSA compatible.”

To spur their adoption, the Internal Revenue Code should be amended to allow individuals to take an income tax deduction for pre-paid direct primary care, just as they now can for contributions to health savings accounts.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

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