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Posted at 3:19 PM ET, 01/31/2011

Why high deductibles don't work for the sick

By Ezra Klein

One of the cost control experiments we've been attempting in recent years has been to increase the amount that individuals pay upfront for medical care in the hopes that this will lead them to make wiser and more judicious decisions when purchasing medical care. The problem, however, is that individuals don't always begin making wiser and more judicious decisions when faced with higher costs. Instead, they just buy less medical care. And as Atul Gawande reports, that can backfire:

The firm had already raised the employees’ insurance co-payments considerably, hoping to give employees a reason to think twice about unnecessary medical visits, tests, and procedures -- make them have some “skin in the game,” as they say. Indeed, almost every category of costly medical care went down: doctor visits, emergency-room and hospital visits, drug prescriptions. Yet employee health costs continued to rise -- climbing almost ten per cent each year. The company was baffled.

Gunn’s team took a look at the hot spots. The outliers, it turned out, were predominantly early retirees. Most had multiple chronic conditions -- in particular, coronary-artery disease, asthma, and complex mental illness. One had badly worsening heart disease and diabetes, and medical bills over two years in excess of eighty thousand dollars. The man, dealing with higher co-payments on a fixed income, had cut back to filling only half his medication prescriptions for his high cholesterol and diabetes. He made few doctor visits. He avoided the E.R.—until a heart attack necessitated emergency surgery and left him disabled with chronic heart failure.

The higher co-payments had backfired, Gunn said. While medical costs for most employees flattened out, those for early retirees jumped seventeen per cent. The sickest patients became much more expensive because they put off care and prevention until it was too late.

Controlling health-care costs is, in the end, about doing a better job managing the illnesses of the very sick. Policies or insurance arrangements that lead to less management of those illnesses are likely, in the long run, to backfire, or at least prove insufficient.

By Ezra Klein  | January 31, 2011; 3:19 PM ET
Categories:  Health Reform  
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I'm not the least surprised about this story. My company doubled the cost of our co-pays and prescription co-pays in the past two years. They're high enough now that I think twice before going to the doctor. I can't imagine what people with children do.

Posted by: lcrider1 | January 31, 2011 3:32 PM | Report abuse

Admittedly HSA's don't work for all. But the idea behind them (which the old Ezra would gladly consider) is this:

I'm specifically looking at the data from Safeway on colonoscopies that showed paid claims data from 2006-2008 and showed that they cost anywhere from $900 and $7200. That's an amazing variance in cost and the reason HSA's work for many people and why they reduce costs.

The intent is not (as some liberals claim) to make people forgo care or pay more out of pocket, its so that they actually CARE what is paid and actually SEE the cost and make their decisions on where to go based upon that cost.

Transparency is the key and until we have that HSA's will never work as good as they could or should.

BTW copay changes for many do not affect behavior. They just give us more reason to complain. That's just a clear cost-shift while deductibles have a way of impacting behavior.

Here's more data on HSA's.

Every situation is different. And btw most HSA's cover preventative care at 100% and now by law (PPACA) every plan has to cover preventative care at 100% so the excuse that prevention was put off because of cost did not fly before and even moreso now does not fly.

Posted by: visionbrkr | January 31, 2011 4:00 PM | Report abuse

The astonishing thing about "having more skin in the game" is that it mostly targets primary care which is at the lowest end of the cost scale.

Does going to the doc for a sore throat drive up health care spending and cause premium increases? Or is it the high cost patients with chronic diseases?

Posted by: steveh46 | January 31, 2011 4:08 PM | Report abuse

"its so that they actually CARE what is paid and actually SEE the cost and make their decisions on where to go based upon that cost."

INTERNET SHOUTING won't change the fact that it doesn't work.

Posted by: pseudonymousinnc | January 31, 2011 4:23 PM | Report abuse

INTERNET SHOUTING won't change the fact that it doesn't work.

Posted by: pseudonymousinnc | January 31, 2011 4:23 PM | Report abuse

and it won't change the fact that you don't understand it either.

Posted by: visionbrkr | January 31, 2011 4:26 PM | Report abuse

Anyone who thinks higher deductibles will help patients choose health care "more wisely" hasn't ever had a high deductible.

What is missing here is a discussion about how much even the most basic health care costs. I have an $1800 deductible, which is the only policy I can afford.

I went in for an ear infection (10-minute office visit) -- $150. Fluid drained from my knee and lab work -- $700.

How is this news, that people will avoid going to the doctor if they can't afford it?

(Don't get me started on the fact that you can't even find out how much a visit will cost until you get the bill.)

Posted by: Jen5251 | January 31, 2011 4:37 PM | Report abuse

The point is that costs are not principally driven by routine or elective care where consumer choice can play a roll. It is driven by major and emergency care, i.e., by complex and/or exigent conditions where the lay consumer is not in a position to make many choices, beyond perhaps getting a second opinion.

Penny-pinching on office visits and colonoscopies is just nibbling around the edges of the problem and won't make a serious difference.

This is why "market-based solutions", like high deductibles, are not solutions. Unlike other markets, the vendors (doctors) are the primary decision-makers, not consumers (patients), and for vendors high costs = high income.

Putting the onus on the patient is just an excuse for cutting costs by rationing care.

Posted by: jtmiller42 | January 31, 2011 4:52 PM | Report abuse

I know it won't happen, but I wish Atul Gwanda would run for Senate for just one term and spend it entirely focused on healthcare.

Posted by: DavidCEisen | January 31, 2011 4:58 PM | Report abuse

"it won't change the fact that you don't understand it either."

I'm somehow meant to be impressed by your command of the boilerplate and verbiage that forms the rotten foundation of the parodic health insurance "system" in the United States?

Congratulations: you're a master of deckchair arrangement on the Titanic.

Posted by: pseudonymousinnc | January 31, 2011 5:52 PM | Report abuse

This reminds me of the classic RAND actual experiment which you often discuss. You regularly note that patients with copays spent less, and that doctors evaluating their medical records concluded that they spent roughly equally less on necessary and un-necessary care.

As you sometimes note (not so often) RAND did not find statistically significant differences in outcomes. So why the difference ? I think the difference is that preventive care is much improved with statins, oral anti-diabetics and much improved anti-hypertensives.

We can't understand the economics of preventive care based on an old experiment no matter how massive expensive and thorough.

In the 18th century RAND would have found that the best health care available was no health care and that bleedings (both those ex post considered necessary and those considered un-necessary) did not lead to better outcomes. Least is best was probably the rule until late in the 18th century (after Samuelweiss).

Posted by: rjw88 | January 31, 2011 6:25 PM | Report abuse

classic paper by kenneth arrow

Posted by: stantheman21 | January 31, 2011 8:33 PM | Report abuse

Why look at one, smaller program instead of the successful programs of Indiana and Whole Foods? If the program continues long enough to influence the market, the costs tend to go down. There is no data here to make a decision- their failings could be addressed by new business models that have not allowed to emerge, due to regulation from entrenched interests.

The point is to make more expensive providers and treatments cost more, not just raise the rates across the board. Once enough insurers and consumers go this route, you will see providers adjusting. While others are willing to overpay, it's hard to bring down costs.

What this really brings out is the future market that Christensen envisioned in "The Innovator's Prescription."-- "The lack of business model innovation in the health-care industry—in many cases because regulators have not permitted it—is the reason health care is unaffordable." Facilitating networks, as described by Christensen, are almost identical to Gawande's idealized clinics, but are enabled by making them the affordable option. If you make the cheaper option cheaper for people, they will take it. Paying for results, on the other hand, has a long history of failure, because the health care provider does not control the results.

Posted by: staticvars | January 31, 2011 9:24 PM | Report abuse

Ezra is wrong. Period. He's trying to cloud over HSAs - and they aren't touched by his analysis.

In an HSA/PPO, with say a Deductible of $7K, where $500 of the premium is going to HSA acct. every month. Year over year, the VERY WORST CASE scenario is a patient out of pocket $1K.

Not, old man doesn't get his medicine.

Every time, it is old man is out no more than $1K per year, and in return for that small inconvenience, we get all the other cost saving advantages.

Posted by: in2liberty | January 31, 2011 10:07 PM | Report abuse

High co-pays can work, if they are implemented correctly. Look at Singapore, for example, which has a co-pay that is:

1: Percentage based, not a flat fee
2: Tied to your income. Bill Gates has a high co-pay %. A store clerk does not.

The key is the first element. Making it percentage based causes people to care about the bill. A flat fee, like most plans have, makes the patient insensitive to price. Indeed, with my workplace plan, I NEVER see the bill, even after the fact. I have no idea how much my last trip to the doctor cost, and no way of finding out other than calling the insurance company and begging for an answer.

Another model country for controlling health care costs is Japan, which spends half what we do on health care despite having 20% seniors to our 12%. They start with a high co-pay (usually 30%) and use aggressive, nation-wide bargaining to set prices. Both Singapore and Japan have some variant of an "out of pocket maximum" to keep sure no one goes bankrupt if things really go sour.

Ideally, I would like to see Medicare for all, with a 30% co-pay for working-age adults and 20% for children and the elderly, capped at 10% of your previous year's adjusted gross income, and with preventative care included for free.

Posted by: brickcha | January 31, 2011 10:17 PM | Report abuse

Very true that major brands do give out samples on their products, search online for "123 Get Samples" we just got ours today. You wont need CC.

Posted by: marycruz234 | February 1, 2011 1:19 AM | Report abuse

i personally like brickcha's idea but i'd add it should be run by private enterprise and not the government so there is a continuing stake in keeping costs down and that it be strictly regulated. I'd also add that it should be able (as Safeway does for example) to pay people small amounts to take better care of themselves. For example you get a bonus payment if you lower or keep your BMI at a certain threshold thus costing the system less money.

I'd also suggest Ezra instead of looking or saying what doesn't work, look to what does. Look at staticvars' examples.

Look to MA that is implementing cost reforms because (similar to PPACA) they took on access first then were forced to deal with exploding costs. its amazing how some will look to MA as the example when it suits them but not when it doesn't.

Posted by: visionbrkr | February 1, 2011 10:00 AM | Report abuse


I don't know if you wrote the headline for this piece, but t completely mischaracterizes the content. You are discussing a program with high, co-pays, not high deductibles. There is a big difference. In fact,high deductible programs are very attractive to "the sick," because they get into 100% coverage faster than they would otherwise.
Greg Scandlen

Posted by: GMScan1 | February 1, 2011 10:22 AM | Report abuse

I respect Ezra and his work, but where's the counter point? How about a discussion on what is working in the HSA markets for individuals that have invested themselves in the system? Do not throw around the phrase "plans for the rich" either. The market data suggests robust growth at the health insurance plans marketing HSAs. Somebody's buying in, so why?

All I want as a consumer is what David Goldhill's plan layed out in his essay (see link)that may satisfy the majority of Americans who want to take control of their own well being.

One peice of food for thought: Is your own health care renewable each January 1, or does it begin for each of us at birth? (not going to discuss, just thought I'd throw it out there to those that are fed up with the annual rise in premiums). Please read the essay if you have not done so already. I had an ah-ha moment at several points throughout it.

Posted by: Bornforee | February 1, 2011 11:40 AM | Report abuse

Klein’s concern is legitimate – clearly, people faced with high costs and a fixed income have hard choices to make. However, when they are armed with very specific competitive cost information, they may find they have additional options. In the example cited here, if the individual knew that he could cut his prescription costs in half by price-shopping – a very real possibility, as documented in our Healthcare Transparency Cost Index study ( – then he could have bought his prescriptions without possibly increasing his healthcare budget.

When people have an incentive to buy prudently, something high co-pays and deductibles provide, AND specific, local and accurate price information – cost transparency - they’re empowered and motivated to make sound, cost-effective and medically-appropriate decisions regarding their own healthcare.

Posted by: askch | February 4, 2011 6:40 PM | Report abuse

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