Exploring Deductibles: Do they Matter in the Era of Managed Care?
- Presenter:
Mon June 5, 2006 9:30-10:45 Room Alumni Lounge
Rationale: Copayments / coinsurance and medical costs have been researched extensively, but the similar effects of deductibles have not yet been comprehensively established.
Objectives: To establish and quantify the effect of deductibles on the health care costs and utilization of privately insured non-elderly population in the USA.
Methodology: Medical claims, enrollment records and health benefits design from 40 large health care plans in 1998, obtained through MEDSTAT Group Inc. provided financial and demographic information on more than one million enrollees. Translog model with interaction terms and polynomials was used to obtain derivatives at various values of deductibles. Marginal effects are modeled as projected changes in average enrollee’s annual costs or utilization, per $1 change in deductible, in 1998 dollars.
Results: Contrary to the initial expectations, the relationship between deductibles and medical costs was found to be predominantly positive. It is our hypothesis that a mix of plans with both positive and negative marginal effects is due to self selection: people with low medical costs tend to move away from plans with high deductibles, resulting in higher mean costs for the remaining enrollees. The range of derivatives variation is established as (-$5) to (+$13) for plans with existing deductibles, and is further expanded up to $30 for plans with no existing deductibles: “sticker shock” effect. Changes in total costs are primarily driven by the change in the outpatient utilization and costs: both sign and value. Inpatient care demand curve was found to be perfectly inelastic, indicating that deductibles affect discretionary care only. The effect of deductibles does not seem to be mitigated by isolated application of managed care tools (such as precertification requirements). However, a systematic concept of managed care applied by PPO plans seems to be capable of reducing their impact on medical costs under certain conditions.
Conclusions: Even in the presence of managed care, deductibles continue to be a barrier, restricting access to medical care. However, higher deductibles in most cases fail to restrict spending. The predominantly positive relationship between deductibles and medical costs indicates, that if the deductible is lowered, there is a higher probability that insurer’s average costs per enrollee will go down, due to the inflow of people with low expected costs (i.e. healthy population). However, this probability varies substantially across the geographic states, most likely due to the states’ different regulations of the health insurance and health care industries, as well as different wages and / or health care prices across the states. Thus, opportunities exist for improving access to health care by lowering deductibles without imposing heavy financial burdens. Government involvement is strongly encouraged.
