The Case for High-Deductible Insurance

Sunday, July 30, 2006

As politicians and bureaucrats debate the role of government in our health-care system, and as concerns are raised by U.S. citizens and employers about rising health-care costs and lack of control and satisfaction, millions of American health-care consumers—without big government mandates—are taking control of their health-care dollar and bringing about changes in the health insurance marketplace.  

The latest data from the leading nationwide online marketplace for health insurance, eHealthInsurance.com, on high-deductible health insurance plans (HDHPs) eligible for health savings accounts (HSAs), reveal the success of patient empowerment when choice and price transparency are offered and when competitive markets are allowed to operate in response to consumer demand. HDHPs are attractive because they shift authority and control of the health-care dollar to the patient, eliminate the administrative burden from small claims, and reintroduce the patient as the customer—all positive steps toward improving our health-care system.

Who is buying these high-deductible health plans? Although the entire consumer spectrum is making these value-conscious decisions when purchasing health insurance, more than 40 percent of 2005 purchasers were uninsured before buying their new plan, and almost 60 percent were less than 40 years of age. The most significant growth in purchases of these plans is in the same 20–39 age group—the group previous studies have shown to make up the largest segment in the ranks of the uninsured.

During the past two years, 3 million Americans have chosen high-deductible plans with health savings accounts, and predictions are that 12 million will make this choice in 2007.

Also striking is that nearly half of the purchasers of these insurance plans in 2005 had annual incomes of less than $50,000. Indeed, in 2005, a full 25 percent of HSA-eligible health insurance plan buyers earned $35,000 or less—increasing that group by more than a third compared to just a year ago.

What coverage are these customers buying? Sixty percent of these empowered consumers, using price comparisons and informed choices, chose plans with deductibles of $3,000 or more, a 20 percent increase from 2004. Extensive coverage of office visits, prescription drugs, emergency room visits, as well as a full array of lab and radiology services, was featured in the vast majority of plans purchased, despite the higher deductible. Suffice it to say that the coverage options in these plans were quite comprehensive.

What was the cost of the insurance plan? Consumers are paying significantly less for their high-deductible health insurance than they did a year ago, in contrast to the overall trend for employer-provided health insurance, which has been the opposite. Competitive pricing, a result of the growing demand of the consumer, has resulted in high-deductible health insurance plans becoming cheaper than ever before: Families are paying 6 percent less and individual purchasers, 17 percent less, on average, for monthly premiums than just one year ago.  

In sum, the evidence continues to build for the power of the consumer in health care.  During the past two years, 3 million Americans have chosen high-deductible plans with HSAs, and predictions are that 12 million will make this choice in 2007. Once consumers with purchasing power were given access to choice and prices were presented clearly, the price of health insurance rapidly decreased.

More than 40 percent of 2005 purchasers were uninsured before buying their new plan, and almost 60 percent were less than 40 years of age.

Improved affordability of health insurance has resulted from a competitive marketplace—despite government mandates that interfere with the market and interrupt the control that empowered consumers wield. The evidence is clear: Consumers, empowered with information, especially price transparency and choice, will shape the marketplace and purchase appropriately valued health insurance. And there is no reason to expect, or desire, otherwise.