The law is driving people into high-deductible plans, inadvertently seeding a consumer-driven market.
The long battle over ObamaCare’s subsidies that culminated at the Supreme Court last week has overshadowed a consequential shift in health insurance: toward high-deductible plans that will help put market forces back into medicine.
Thirty-seven million Americans are enrolled in these high-deductible plans, which is more than the 22 million projected to be enrolled on the exchanges by 2025. PricewaterhouseCoopers reported last month that 83% of employers offer a high-deductible plan, up from 67% in 2014. Overall, 31% of employers report that these plans are the most popular they offer, up from 17% in 2012. This trend will only increase once ObamaCare’s “Cadillac tax” on high-value plans (those with premiums greater than $10,200 for individuals, and $27,500 for families) takes effect in 2018.
As millions of Americans move onto high-deductible plans, they will change their behavior—and the incentives of the market. Under these plans, in a typical year consumers will pay most, if not all, of their health-care expenses out of pocket. Since they will be spending their own money, they will compare prices for checkups and procedures. Providers will have to earn their business on the basis of quality, price and service, the way companies do in the other four-fifths of the U.S. economy. Competition has the potential to transform America’s sclerotic, overpriced health-care system into something much more transparent and affordable.
Today, only 11% of the $3 trillion in U.S. health care is spent directly by patients. But that’s still $330 billion—more than Americans spend annually on anything other than shelter, food or transportation. Indeed, the past few years have witnessed a blossoming of innovative companies seeking to manage, discount or simplify health care for millions of newly engaged patients. Among the nimble disrupters are retail walk-in clinics (CVS and Walgreens), telemedicine firms (TeleDoc and HealthSpot), and health-transparency portals (Castlight and Healthcare Bluebook), to name only a few. Imagine the market for health care if the amount of money spent directly by patients doubled or tripled.
The caricature is that consumer-directed health care means that patients have to shop around when having a heart attack. But in the event of a truly immediate or catastrophic illness, insurance will continue to cover the costs. The truth is that the overwhelming majority of health services result not from emergencies but from chronic, long-term illnesses. Most patients do have the time and the ability to make decisions on the source and course of treatment, from knee replacements to cancer care. But the industry today makes thoughtful choice almost impossible.
The widespread adoption of high-deductible plans does, however, face two major challenges.
First, advocates of consumer-directed health care suggest that much of the money saved in premiums—high deductible plans can be thousands of dollars less expensive than comprehensive plans—be put into health-savings accounts to help pay for routine care. Over time, that savings can grow into a large nest egg.
But without that backstop, Americans will face the worst of both worlds: no coverage for everyday care and no dedicated financial resources to offset new expenses. Hence, critics cry that high-deductible plans leave patients “underinsured”—and that they will avoid or delay needed care as a result. The evidence is mixed. But it seems to be a problem particularly among those who enroll in high-deductible plans on the ObamaCare exchanges; few appear to be establishing health-savings accounts. One problem is that the exchanges make it very difficult to identify HSA-eligible plans.
Second, consumer-directed health care works because it encourages competition. Unfortunately, competition in medicine seems to be falling as hospitals and insurers merge, potentially leading to higher and more opaque prices.
These issues can be addressed without federal action. Employers can ensure that families with high-deductible plans also contribute to health-savings accounts as the default option. Businesses should demand that insurers offer consumer-friendly tools for finding and comparing medical providers—and rewards for choosing a cost-effective option.
Employers should also be more receptive to nimble competitors to traditional medicine that can offer lower prices, better health outcomes or greater convenience for patients. Telemedicine, expert second opinions for complex illnesses and medical tourism can bring much needed competition to health-care markets. Incumbent providers will be forced to innovate—or find their patients leaving for competitors that offer better value.
The rise of high-deductible plans also requires a shift in states’ priorities. Liberating information on the cost and outcomes of various medical services—perhaps through new online databases—becomes key. So does reforming laws that restrict nurses’ scope of practice, limit corporate practice of medicine, or require certificates of need. Paring back these anticompetitive regulations would encourage capital to flow toward nimble startups challenging overpriced, entrenched providers.
Finally, state and local governments, which employ nearly 20 million people, should use their market power to speed the transition: by demanding transparency, sharing data and negotiating with union health plans to reduce costs ahead of the Cadillac tax.
In a dramatic twist, ObamaCare seems to be accidentally driving many of the changes that its critics sought all along. If we don’t seize the opportunity that high-deductible plans offer to fix much of what’s wrong with medicine, frustrated patients will clamor for more government regulation, squashing the beginnings of a health-care revolution in the making.
Mr. Goldhill, the CEO of the Game Show Network, and Mr. Howard, the director of the Manhattan Institute’s Center for Medical Progress, are the editors of “New York’s Next Health Care Revolution: How Employers Can Empower Patients and Consumers.”