High deductible plans can be risky

Sacramento resident Tami Shepherd was shocked to find last month that in just three weeks her health insurance was being swapped to a high-deductible healthcare plan (HDHP). Waiting to have surgery for a hysterectomy scheduled, Shepherd’s husband came home from work one day and told her that his employer announced they were switching to a Kaiser Permanente plan that required high deductibles. If she didn’t have the needed surgery for a pre-cancerous condition by the end of the month, her out-of-pocket expenses would balloon from several hundred dollars to an estimated $6,000.

“I felt more lost than I ever had in my whole life,” said Shepherd, whose husband works for a ready-mix concrete and asphalt company.

After days of crying, Shepherd’s neighbor informed her of a consumer help line at the Department of Managed Healthcare (DMHC). She called immediately, and within 24 hours the help line had contacted its Kaiser Permanente liaison and Shepherd was guaranteed her surgery before the end of the month.

Despite its happy ending, Shepherd’s story highlights the downside of high deductible plans and economic realities.

A sluggish economy is now colliding with worries by California health plans that federal health reform in 2014 — The Patient Protection and Affordable Care Act — will add millions of previously uninsured citizens to the health care system, driving healthcare costs up even higher.

HDHPs and their close cousin, Health Savings Accounts (HSAs) – together termed consumer-driven health plans (CDHPs) – are gaining in popularity as employers seek ways of cutting costs to provide employees what they desire most from their health insurance: lower premiums. In theory, they work for the consumer by changing insurance from an expensive way to reimburse themselves for minor health costs to a more affordable way to protect themselves from the financial effects of a catastrophic illness or injury. But people need to read the fine print carefully to make sure the plan they are buying will cover them adequately if they need it.

There are two distinct types of HDHPs.

First, there are high-deductible HMOs which – as HMOs – have federally mandated coverage that cannot be removed from the plan. To lower premiums on these HMOs, however, health insurers can raise the deductibles and co-pays for various treatments.
Second, there are high-deductible PPOs, with less stringent regulation. The pricing and coverage for these plans can be customized to a much greater extent, so these plans typically require more scrutiny by customers.

And while both types of plans are becoming more common, their efficacy within the healthcare system is still uncertain.

“Despite growing enrollment, little is known about the effects of HDHPs or CDHPs on healthcare costs and on the use of necessary care,” reports the national study “Healthcare Spending and Preventive Care in High-Deductible and Consumer-Directed Health Plans,” led by Dr. Amelia Haviland of the Santa Monica-based RAND Corporation.

This report and a second RAND study indicate that high-deductible plans may have unintended side effects. Even when preventive care is offered free, patients often don’t avail themselves of these services. Knowing they have high-deductible plans, patients habitually avoid going to the doctor – even for preventive care.

Contrary to other studies, however, “medically vulnerable Americans” – those with low incomes or chronic health problems – didn’t reduce access to healthcare any more than their wealthier counterparts.

“We did not find greater cut backs for medically vulnerable families,” says Dr. Haviland.

Patients who reduced their health spending the most had HDHPs coupled with HSAs, according to RAND.

Approximately 20% of Americans were enrolled in HDHPs or CDHPs in 2009, according to the RAND studies. More than 54% of large employers offered at least one HDHP in 2010.

“HDHPs come with risks,” agrees a 2010 California health report by the UCLA Center for Health Policy Research. “While (Californians) with high-deductible plans may be less likely to utilize the emergency room for care, they may also delay necessary treatment or doctor visits.”

Three million Californians held HDHPs in 2007, according to the report, with an average annual deductible of $1,800.

Experts say that enrollment in high-deductible plans will undoubtedly rise as states establish insurance exchanges to cover the uninsured in 2014.

That worries Beth Abbott, Director of Administrative Advocacy for Health Access, a California consumer advocacy coalition.

“People don’t know what they’re getting with a high-deductible plan,” said Abbott, who was most critical of PPOs. “They think they’re covered and they’re not.”

Abbott referenced one self-employed California woman who purchased an individual PPO plan with sufficient in-patient coverage, only to find her diagnosis for breast cancer would receive care only with out-patient treatment.

“She thought she was covering herself against catastrophic (illness) but she wasn’t at all,” said Abbott. The woman –whom Abbott called “a pretty informed customer” – eventually spent $22,000 out of pocket.

Financially-strapped employers offer lower premiums, says Abbott, with insufficient coverage that throws a huge burden onto unsuspecting employees, who typically have no way to truly understand or – less likely — project their healthcare expenses. “(Employees) find it all falls into their financial responsibility and they are in no way able to cope with that.”

Abbott called high-deductible plans “a bait and switch” – the illusion of healthcare coverage without the reality.

At DMHC, which receives between 6,000 and 7,000 calls a month, consumer concerns are rising over the trend towards high-deductible plans.

“Unfortunately, if you are chronically ill, or if you are going to have a high-cost procedure, you don’t want a high deductible plan,” says Maureen McKennan, acting deputy director for DMHC’s Plan and Provider Relations.

Small employers are the most likely to move to HDHPs, says McKennan. The most popular product for Kaiser Permanente members, she points out, is now its high-deductible HMO plan.

But McKennan says that offering high-deductible plans are only one way insurers are limiting coverage and controlling costs. Insurers have also begun an aggressive campaign to move employers away from comprehensive HMO coverage to PPO’s with “skinnier plans” – lower premiums featuring significantly reduced benefits.

In response, says McKennan, her organization is trying to work with health insurers to retain full HMO coverage for patients while still delivering affordable premiums. One way of doing that is through “narrower networks” – limiting the number of in-network providers to save money and streamline care.

Former DMHC director Cindy Ehnes spoke frankly about the disturbing trend towards high-deductible plans, tracing them back to a 2004 white paper by a Citigroup executive called “Hello HSA, Goodbye HMO.”

Since then, Ehnes said California health insurers have gamed the system by migrating products away from DMHC (which oversees the stringent HMO standards set by the 1975 federal Knox-Keene Act) to PPOs that shift healthcare costs to consumers (with oversight by the Department of Insurance). She called it “an irresistible business issue.”

Ehnes said after Anthem Blue Cross of California introduced its Tonik PPO product aimed at typically healthy 18-25 customers – the so-called “Young Invincibles” – “then all of the other insurers fled from the DMHC to the DOI in their individual line of business.” Ehnes said DMHC lost oversight of 61% of individual products in just four years. She expects this migration to continue.

Ehnes, now president and CEO for the California Children’s Hospital Association, said her biggest fear is that health insurers will continue to raise rates although healthcare utilization continues to decrease.

Dave Jones, commissioner for the Department of Insurance, echoed those sentiments at the Capitol recently during a meeting of the Assembly Health Committee.

“Premiums are going up much higher than health care costs,” he told the health committee during a discussion about rate regulation.

Still, DMHC’s McKennan spoke hopefully about the future of managed care, and stressed that DMHC was working with insurers to improve healthcare delivery.

In particular, McKennan identified two popular trends: tiered networks and Accountable Care Organizations.

She said PacifiCare / UnitedHealthcare has created a three-tiered coverage system for the San Diego School District “with the lowest cost tier having the narrowest network, middle tier slightly larger, and the highest cost tier having the largest network.”

The hottest topic within health circles, said added, are the new Accountable Care Organizations (ACOs) which offer incentives to physicians and hospitals who hit quality benchmarks. The Obama administration recently released ACO guidelines for Medicare.

Whatever happens with California healthcare benefits, the state will continue to assist patients through DMHC along with its research and policy arm, the Office of the Patient Advocate, which publishes medical quality ratings.

“I love them,” said Shepherd, pleasantly surprised that government agencies could respond so quickly and effectively. “My stress went from extremely high to so calm. Just knowing that somebody was looking out for me, that something actually worked.”

NOTE. This article was updated May 9 for clarity.

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