​The painful rise of high-deductible health insurance

As Americans this year signed up for new health care policies through their employers or the Affordable Care Act, many received an unwelcome tweak: even higher deductibles than in prior years.

Deductibles, or the amount individuals must pay out of pocket before their insurance kicks in, have surged 67 percent since 2010 alone for employer-sponsored health-care plans, according to the Henry J. Kaiser Family Foundation. The average individual deductible for a bronze plan through the ACA, meanwhile, tops $5,700 for 2016, according to research from plan-comparison site HealthPocket.

While it's painful for Americans' pocketbooks, the rise in deductibles aren't meant to be punitive. The theory behind the policy is to give consumers more "skin in the game," which would encourage them to become careful health-care shoppers, such as by either comparison shopping or seeking only the care they really require and skipping treatment for minor complaints.

So are Americans responding the way the theory predicts they will? Yes, but with a troubling caveat.

"When consumers have more cost sharing, do they spend less? We're finding yes," said Benjamin Handel, assistant professor of economics at the University of California, Berkeley. "Then you have to ask how is spending going down: Is it because consumers are acting in a sophisticated manner and shopping for providers and prices and reducing quantities of wasteful care, or are they viewing this as a fairly blunt instrument?"

The latter, it turns out. Consumers tend to respond to higher deductibles by cutting back across the board, regardless of whether the treatments are useful or potentially wasteful, according to a paper from Handel and fellow researchers Jonathan Kolstad and Zarek Brot-Goldberg at Berkeley and Amitabh Chandra at Harvard University, published by the National Bureau of Economic Research

"I got really frustrated," said Mikey Shiwnath, 27, who signed up in 2015 for a health-care plan with an $8,000 deductible after starting his own bookkeeping business. The plan was the cheapest he could find at the time. "I thought that's why you had insurance: you had it, and you didn't have to pay on top of it. I was like, 'Wait, I have to pay up to $8,000 first?'"

Shiwnath said he reacted by skipping doctors' visits. Then he took the ultimate decision in reducing health-care insurance costs: he canceled his coverage last summer. He said although he would face a tax penalty for going without coverage, it made more financial sense for him. He spent the remainder of 2015 stressed about getting injured.

"I was worried about getting hurt and leveled off on my skateboarding and going snowboarding and the wild things I used to do," he said, adding that he's once again insured, after finding a plan with a lower deductible -- $6,000 -- and smaller premiums and co-pays. "It was nerve-wracking."

Shiwnath's experience may not be all that uncommon. Handel, Kolstad and their co-authors tracked what they called a "natural experiment": a large employer that was transitioning from a generous health-care plan to one with a high deductible. They found that while consumers cut back their spending by as much as 15 percent, those reductions came from indiscriminately paring back valuable care, such as preventive services, and what might be more wasteful spending, such as imaging services.

"The assumption in economics is that consumers are informed, and in the version where consumers are informed it's not a bad idea," said Kolstad. "You think that consumers won't shop if they are covered for every single dollar and every single test."

When it comes to health care, however, consumers tend to lack information, often through no fault of their own. The health-care marketplace is notoriously opaque, offering little hope for even savvy consumers to shop around for the cheapest place to, say, get a colonoscopy or a blood test. Many treatment decisions are made at stressful times, when patients aren't able to bargain or shop around, such as if a consumer is suffering from appendicitis and requires emergency surgery.

Many workers, fearful of incurring high out-of-pocket costs, respond to the "spot" price, or the up-front cost, rather than considering what they are likely to spend throughout the year and whether they'll meet the deductible. That held true even for sicker people, whose higher levels of spending should have caused them to exceed the deductible. Rationally, those sick employees shouldn't have cut back, because it would gain them neither financial nor health benefits.

"We think of consumers as forward-thinking people," Kolstad said. A sick person, he said, should think, "I'll spend $7,000 for sure, so I should act like my price is $0."

High-deductible plans, then, may have the unintended consequence of dissuading consumers from seeking care that they need, on top of services that might be less important. The question is whether that might lead to worse health outcomes for Americans. Kolstad said that since their paper tracked employees over a two-year period, it's too early to say.

"This moved my opinion toward thinking that people are reducing quantities in a haphazard way," Handel added.