Ensuring High Out-of-Pocket Spending Won’t Lead to Negative Outcomes

November 22, 2017 - High deductible health plans (HDHPs) are intended to reduce payer and beneficiary spending on healthcare services, but untenable out-of-pocket spending for beneficiaries could lead to patients letting preventable conditions develop into catastrophic care costs for payers down the line.

Research shows that patients purchasing plans with high out-of-pocket spending requirements were likely to skip preventive services and experience lower medication adherence rates for chronic diseases.

Avoiding necessary utilization increases the chance that individuals may have costly chronic diseases that lead to billions in healthcare spending for payers.

How can payers reap the financial benefits of HDHPs while ensuring that patients balance out-of- pocket spending with the care they need to avoid exacerbation of developing conditions?

Identifying likely HDHP enrollees or beneficiaries with high healthcare costs

Beneficiaries with certain conditions account for thousands in out-of-pocket spending that goes well over the highest HDHP deductible amounts. These beneficiaries may create costs that surpass the IRS-defined high deductible amounts of $1,300 for an individual and $2,600 for a family.

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A Pearson-Kaiser healthcare tracker found that 12 percent of private insurance enrollees spent over $2000 on out-of-pocket healthcare costs per year. Individuals with blood organ diseases from chronic conditions or related cancers had average out-of-pocket costs of $1,953.

A cancer diagnosis is likely to bring costs in excess of $5000, Pearson-Kaiser added.  Diagnoses with the highest likelihood to contribute to individual out-of-pocket spending over $5000 include colorectal and lymphatic cancers.

Mental health patients participating in suicide treatment and prevention programs also have higher than average healthcare costs. Roughly 82 percent of suicide treatment patients had costs over $1000, and 15 percent of these patients had costs over $5000.

Individuals that are the most likely to enroll in an HDHP include younger individuals and financially savvy individuals that have time and resources to plan for potentially catastrophic out-of-pocket spending.

Younger individuals have the highest likelihood of enrolling in HDHPs (consumer directed health plans) because they want more control over their health plan decision-making. These individuals tend to wish to avoid high monthly premiums, and often don’t consider themselves to be at risk for developing a serious illness.

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Financially secure individuals that can afford to save on healthcare would also be likely to enroll in a HDHP because they can pair it with tax-advantaged HSA accounts.

Adjusting preventive benefits that address high out-of-pocket expenses

Payers that have beneficiaries at risk for high out-of-pocket spending, or a significant number of HDHP enrollees, may wish to offer more benefits that increase access to preventive services linked to lower healthcare costs.  

Private payers may want to provide lower cost sharing options, with $0 copays or coinsurance on common preventive care services. Preventive services like chronic disease screenings could lower healthcare spending by billions and reduce avoidable healthcare costs associated with low screening rates.

Ensuring that payers cover the costs of routine screening tests with abnormal results can also promote participation and potentially encourage patients to follow up with additional services after receiving a red flag.

Cost-sharing amounts have increased over the years, however, according to a separate Pearson-Kaiser analysis which creates even less incentive for HDHP beneficiaries to seek necessary healthcare services.

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Cost-sharing has increased by 66 percent from 2005 to 2015, the report said, with average cost sharing increasing from $469 a year to $778.

“This reflects a modest decline in the average generosity of insurance,” the authors of the report said. “Large employer plans covered 86.2 percent of covered medical expenses on average in 2005, decreasing to 85.4 percent in 2015.”

Payers that improve cost-sharing ratios between health plans and HDHP beneficiaries may likely see financial returns in the form of fewer high-cost conditions.  

Payers could also to reduce volatile health care costs is by readjusting benefits based on catastrophic-cost conditions such as cancer diagnoses.

Policy suggestions and plan design suggestions from the American Cancer Society may help guide payers toward improving costly cancer care. These include improving health plan transparency in provider networks, requiring plan formularies to be available to consumers, and transparency about which drugs are covered under a plan.

Payers may also find valuable returns by combining preventive benefits for conditions associated with out-of-pocket spending with medical care.

Integrating behavioral and mental health into primary care is associated with cost savings of $1500 per patient, according to the Institute for Healthcare Improvement (IHI).

IHI also found that patients in a health plan with integrated behavioral and mental health care had a 34 percent less chance of an ED visit, and spent $667 less on services than health plan members without integrated behavioral and mental health care services.

The Pearson-Kaiser health tracker suggested that around 43 million American adults have a mental health condition, and that 21.7 percent of adults with mental health issues are between the ages of 18 and 25.

Payers that provide comprehensive mental health benefits such as screenings and treatments may be able to target this segment of the market while lowering potential out-of-pocket expenses.

Providing educational resources on HDHP benefits and cost-management strategies

Ultimately, beneficiaries will be the ones to decide if they want an HDHP, so payers must be able to effectively educate potential enrollees about whether or not an HDHP is right for them.

Informed enrollees have a better chance of knowing if their spending, costs, and health status make an HDHP appropriate for their needs.  

Payers should educate HDHP enrollees on how to be informed consumers, and how to manage costs. Methods for increasing smart plan-shopping include the use of price comparison tools on healthcare services, identifying free healthcare services, and leveraging tax breaks from HSAs if consumers have an HDHP.

Providing extensive resources and case studies on HDHP use may encourage the right beneficiaries to enroll, while guiding less eligible enrollees to plans that are more suited to their utilization patterns.   

The Wisconsin state insurance department provides detailed guides and educational materials to individuals looking for a HDHP, and includes case studies to fully educate individuals about their high-deductible plan options.

For example, one case study illustrates that a single person with low costs who rarely needs a doctor’s visit would benefit from an HDHP, because they’re not expecting a significant medical emergency in a short-term period.

Conversely, a family HDHP case study found that families who have regular and low-cost care expenses would benefit from an HDHP because they can save for unpredictable healthcare costs in the future.

HDHPs can potentially help reduce beneficiary out-of-pocket spending while limiting the potential for spending on preventable catastrophic illnesses. Payers that proactively identify beneficiaries with unique needs, provide cost-reducing benefits, and empower their consumers to make good choices for their personal care can further curb high healthcare spending.