Catastrophic health care plans?

Last updated on: July 25, 2013 at 2:19 pm by Jane the Actuary

Catastrophic health care plans? 2013-07-25T14:19:00-06:00 Jane the Actuary

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What do I think of Catastrophic/high deductible plans?

They have their plusses and minuses. My employer (which shall be nameless) think’s they’re the best thing going, both in terms of how they advise clients and how they structure their own benefit offerings (the non-catastrophic offerings’ employee premiums are so much higher than the catastrophic plan that you could meet your entire deductible every year and still pay less than if you elected a non-cat. plan).

It is true that they require consumers to behave as consumers, thinking before they rush into some treatement or another about whether it’s really necessary or the most cost-effective choice. For instance: can I use an over-the-counter treatment for my wart, or do I need to see a dermatologist? Should I see the doctor about my swollen knee, or call the nurse helpline first? What’s the cheapest way to get the recommended MRI done, and is it really necessary?

There are a couple problems with this approach, though. In general, we lack the information necessary to really act as consumers. Despite some attempts by insurers to make this information available, we generally don’t have data on what the most cost-effective way is of getting a certain treatment (e.g., hospital vs. outpatient center, and which one), and hospitals are generally unwilling to provide it. Doctors don’t know the cost of the procedures they refer patients for (especially to the extent that they vary by health plan), and aren’t accustomed to thinking in terms of cost-effectiveness (in terms of advising a patient on whether a given procedure is medically necessary, will just provide additional peace of mind, or is even not proven at all). And patients are often ill-equipped to make these decisions for themselves.

Ultimately, this means that many people would be better off under a system that doesn’t really exist now: one in which primary care physicians manage the patient’s healthcare with an eye to both quality of treatment and cost of the treatment, telling a patient “no” when necessary and supervising all aspects of the patient’s care, within and outside of that practice’s office. HMOs were supposed to work this way, but they never succeeded, for multiple reasons, and Kaiser in California is the one large insurer structured in a “staff model” approach, but, so far as I know, isn’t extraordinarily successful at keeping costs down. (Note to self: try to find out why Kaiser doesn’t “work”.)

Also, is self-pay for small medical expenses cheaper (by avoiding administrative costs) than running everything through insurance, in the same way that we don’t expect our oil changes to be covered by auto insurance? One difference is that medical expenses are cumulative over the year — we expect each expense to apply to a cumulative deductible, rather than having each expense treated individually. For a car, if I have small bumper damage, I’d pay for that without contacting the insurance company, since I know it’ll be under the deductible, but if I want my doctor’s visit to apply to the deductible, there are administrative costs to that, regardless of whether the insurance company reimburses the provider or just reports, “the patient hasn’t satisfied the deductible.” In fact, in a scenario in which small routine expenses are not even counted toward the deductible at all, I’m generally still better off submitting the claim through insurance to benefit from the negotiated rate.

There are a lot of pieces to the puzzle of why health care costs are so high and what to do about it — for many people, catastrophic plans can be a component of successful cost-control, but it’s far from a solution in itself.

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