High deductible insurance requires out-of-pocket payments of $1,000 to $10,000 or more before comprehensive coverage begins—according to a credible Kaiser Family Foundation publication. “ Behavioral economics,” namely how we respond to monetary incentives or disincentives. This popular term can explain our actions as conditions around us change. In this instance, behavioral economics describes how changing health insurance policies currently being offered may change the way we purchase healthcare.

 

Most insurance is designed to cover major unforeseen and unplanned events. Think of homeowners insurance, which is designed for major damage such as that caused by flooding or fire. Homeowners’ coverage was not designed to replace a broken refrigerator or burned-out light bulb.

 

Major medical insurance was originally designed to cover hospitalizations which, typically, are also major unforeseen and unplanned events. Medicare started in 1965 and was also designed initially as paying only 80% of the approved medical bill, with the patient paying 20%. This smart design had the patient with “skin in the game.” Within a short period of time supplemental insurance began covering the other 20%, which had the unforeseen consequence of removing much of the prudence associated with paying one’s own way. In economic terms, this is called a moral hazard—when someone is not responsible for some benefit which may be coming their way.

 

With high deductibles, most folk’s behavior changes to become more prudent price shoppers, avoid care, or if care is unavoidable, face an economic hit which can break a low-income family’s budget. Cutting out essential preventive services is a real risk which, in the long run, can result in higher healthcare costs. A good example is uncontrolled blood pressure, which ultimately can lead to a heart attack or stroke. The same would be true of poorly-controlled diabetes, resulting in costly complications.

 

The Center for American Progress has estimated that in Massachusetts, out-of-pocket costs for managing uncomplicated diabetes amount to more than $4,000 per year; and out-of-pocket costs can approach $40,000 per year for a patient with a heart attack requiring hospitalization. The Centers for Disease Control and Prevention estimates that owing in part to such high out-of-pocket costs, in 2011 about a third of U. S. families were either struggling to pay medical bills or defaulting on their premiums. These facts were shared in a 2013 New England Journal of Medicine (NEJM) editorial.

 

“ Full Disclosure — Out-of-Pocket Costs as Side Effects,” another NEJM contribution points out that physicians and non-physician care-givers typically inform patients about side-effects of treatment but rarely share information about the costs. Part of the problem is the complicated nature of medical insurance—neither the patient, caregiver, or provider can understand the process or final breakdown.

 

According to an editorial in Modern Healthcare, “Some major health insurers, including Aetna, WellPoint, and Humana, have reduced patient cost-sharing for preventive drugs out of a growing realization that by doing so they increase patient compliance with drug therapies, improve outcomes and cut the total cost of care.” Preventive services are not subject to high deductibles or co-insurance under the Affordable Care Act which is another way of encouraging prevention and thus improving health and lowering expenses.    

 

There are some other good economic strategies to help with “self-funding” the deductible. Having a Health Savings Account (HSA) allows a person to put away money which is not taxed and roll it over year after year if not used. With time, prudence, and some good luck of not needing the deductible early on, one can accumulate enough to cover the deductible and be ahead of the game, since the premiums for high deductible insurance are lower than those for low deductible.

 

Education is necessary for all concerned as these concepts are not easily accepted in our current culture of wanting everything now without long-term self-sacrifice. The idea of having a personalized insurance plan using an HSA, and a high deductible plan—along with good prevention—should decrease the need for healthcare in the long term. This goal is good for individuals, their families, and our nation, as we can decrease our spending on healthcare leaving more resources for other worthwhile endeavors.

 

Life has changed as we live in a globally competitive world. Our healthcare costs cannot continue to rise unabated as these costs cut into our economic strength as a nation. We all will need to sacrifice and become more efficient as we take better care of ourselves physically and financially. Clearly, prevention avoids the 80% of self-induced illnesses.