The Rise of High Deductible Health Plans and Their Consequences
More than 40 percent of Americans age 18-64 with private health coverage are now enrolled in a plan with an individual deductible of at least $1,300 or $2,600 for a family.1 The deductible for most HDHP members now exceeds the minimum required by law (Figure 1).1 Participation in high-deductible health plans (HDHPs) has grown significantly to over 71 million enrollees.1,2 Thirteen percent of employers offer an HDHP as the only health benefit option.3
Increases in consumer out-of-pocket costs for health care have been associated with deleterious consequences. These include financial stress,4 worse disease control,5 increases in hospitalizations,6,7 and exacerbation of health disparities.8-10 A robust literature reports that these findings apply to HDHP enrollees, particularly those with chronic medical conditions and lower household income.11 According to the National Health Interview Survey, adults age 18-64 enrolled in HDHPs in 2016 were more than 1.7 times as likely to report going without or delaying medical care due to cost.1
Permitted Pre-Deductible Coverage in HSA-HDHPs: The IRS "Safe Harbor"
Congress created Health Savings Accounts (HSAs) in 2003, with the provision that these accounts would only be available to those enrolled in qualifying HDHPs. The tax advantages of HSAs and lower HDHP premiums have driven rapid uptake among employers. In 2018, statute requires that qualifying HDHPs must have minimum deductibles of $1,350 (individual) or $2,700 (family). Guided by the Internal Revenue Service (IRS) safe harbor under section 223(c)(2)(C) of the Internal Revenue Code, HSA-eligible HDHPs may provide coverage of the following services prior to satisfaction of the plan deductible including:
- Preventive services recommended by the U.S. Preventive Services Task Force (USPSTF), the Advisory Committee on Immunization Practices (ACIP), the Health Resources and Services Administration’s (HRSA’s) Bright Futures Project, and HRSA and the Institute of Medicine (IOM) committee on women’s clinical preventive services (required by Section 2713 of the ACA and IRS Notice 2013-57);12,13
- Periodic health evaluations such as annual physicals and select preventive screenings not listed above (optional, per IRS Notice 2004-23);14
- Obesity weight-loss programs and tobacco cessation programs (optional, per IRS Notice 2004-23);14
- Drugs taken by asymptomatic individuals to prevent the manifestation of disease (optional, per IRS notice 2004-50).15
Under this IRS guidance, until the deductible is met, coverage does not include "any service or benefit intended to treat an existing illness, injury, or condition, including drugs or medications."15 This narrow definition of the "safe harbor" is highly problematic. Primary prevention, while important, is a small component of overall health spending. By contrast, spending on chronic disease encompasses a substantial majority of total US health care expenditures.16 For those with medical conditions, access to affordable clinician visits, diagnostic testing and prescription medications are critical components of disease management.
Amending the IRS Safe Harbor to Include Chronic Disease Medications
There is a body of peer-reviewed literature demonstrating that selectively lowering cost-sharing for high-value chronic disease management medications can meaningfully improve adherence, reduce the risk of adverse health outcomes, and, in some cases, reduce expenditures.17 To enhance consumer choice and create a more robust HSA-HDHP marketplace, Senators John Thune (R-SD) and Tom Carper (D-DE), and Representatives Diane Black (R-TN) and Earl Blumenauer (D-OR), introduced the Chronic Disease Management Act of 2018. The bipartisan bill would amend the Internal Revenue Code to create a "safe harbor for absence of deductible for care related to chronic conditions," providing that:
A plan shall not fail to be treated as a high deductible health plan by reason of failing to have a deductible for care related to the treatment of any medically complex chronic condition which—
(i) is substantially disabling or life threatening,
(ii) has a high risk of hospitalization or other significant adverse health outcomes, and
(iii) requires specialized delivery systems across domains of care.
In addition to bipartisan political support, the Smarter Health Care Coalition – which counts more than 25 health plans, medical societies, business groups, employers, health sciences companies, and others as members – has championed this cause, calling for an executive order or legislation to bring about the needed change.18
|Table 1: Diseases Included|
|Attention deficit disorder|
|Hypo-functioning thyroid gland|
|Inflammatory bowel disease|
|Adult rheumatoid arthritis|
Estimating the Financial Impact of Pre-Deductible Coverage of Medications for Common Chronic Conditions
HDHPs are appealing to employers because of their low premiums. If enhancements in prescription drug coverage are not offset by reductions in spending on other services (e.g., emergency visits and hospitalizations), adding pre-deductible coverage for medications used to treat chronic conditions could increase premiums and plan actuarial value (AV). Accordingly, the aims of this analysis were to quantify the potential financial impact on patient out of pocket costs, plan expenditures, and plan AV of providing pre-deductible coverage for 57 drug classes used to treat 11 chronic conditions (Table 1). Conditions and drug classes were selected based on the disease prevalence and contribution to member- and plan-paid expenditures.
Implementation of pre-deductible drug coverage can change plan-paid expenditures in three respects:
- Volume: Lower patient out of pocket costs tends to increase utilization. An estimate of enrollees’ responsiveness to changes in price (i.e., elasticity of demand) was used to determine increases in utilization and related expenditures.
- Shift: Independent of volume effects, lower consumer cost-sharing shifts the cost burden from the patient to the plan. This analysis accounted for changes in the apportionment of expenditures.
- Offsets: In some clinical scenarios, greater utilization of high-value therapies can decrease spending on other services (e.g. hospitalizations). This analysis did not account for these offsets.
An HSA-qualified HDHP with a deductible of $2,000 was used as a baseline for the analysis (AV approximated 74 percent). Once the plan deductible was satisfied, this simulated plan imposed a 10 percent coinsurance for all covered services (including drugs) until reaching the out-of-pocket maximum of $6,500.
An HDHP with permitted pre-deductible drug coverage for the specified 57 drug classes was simulated. Consumer cost-sharing was $5 for generics, $40 for branded non-specialty drugs, and 10 percent coinsurance for specialty drugs.
Amending IRS Safe Harbor to Include Chronic Disease Medications
Table 2 shows expected changes in plan- and member-paid expenses between the baseline HDHP and an HDHP with expanded drug coverage, as well as impact on plan AV. Estimated increases in premiums and deductibles needed to keep plan expenditures neutral are also presented. The modest increase in plan expenditures were split between increases in medication utilization and shifting allocation of drug expenditures. Covering all 57 targeted classes on a pre-deductible basis with $5/$40/10% cost-sharing would require an increase in premium of less than 2 percent.
|Table 2: Impact of Pre-Deductible Drug Coverage on Total Spending|
|Plan Paid PMPM||Member Paid PMPM||Overall AV||Increase Needed to
Offset Higher AV
Premium OR Deductible
|HDHP with Targeted Drugs Covered Pre-Deductible with $5/$40/10% Copay||$325.11
Increase of $5.34
Decrease of $3.38
Increase of 0.9%
These estimates should be considered "ballpark," as limitations apply to the underlying analyses. As Table 3 shows, limitations tend to both over- and under-estimate effect. This summary of limitations is not exhaustive.
Providing pre-deductible coverage for over 50 drug classes used to treat common chronic conditions would lower consumer out of pocket costs and increase utilization of essential medications. Such a change would lead to a small increase in plan AV, and would require a small increase in premium or deductible for payers interested in keeping the financial impact of the benefit change cost-neutral. In addition to "blunt" approaches such as increasing premiums for all beneficiaries or raising deductibles on all services, plan sponsors could pursue a range of more nuanced cost reducing strategies to create "headroom" for additional spending on high-value medications. For example, plans could steer patients to high-performing providers through centers of excellence programs or otherwise offer incentives for use of high-value sites of service. Plans could also target expenditures devoted to specific low-value clinical services, such as non-recommended screenings, unneeded imaging, wasteful pre-surgical testing, and much more. Further detail on the magnitude of potential savings, as well as practical strategies for waste avoidance, are available.19
|Table 3: Select Limitations of Analysis|
Tend to Overstate PMPM Impact
Tend to Understate PMPM Impact
HDHPs are entrenched in the American healthcare landscape. The current policy that imposes high deductibles on all chronic disease services – independent of clinical value – to control spending has imparted a clinical and economic toll on Americans with chronic medical conditions. It is critical that regulations that prevent health plans from innovating be amended, such that plan designs that better meet the clinical and financial needs of millions of Americans may be made available.
Bipartisan, bicameral legislation that allows HDHPs the flexibility to provide pre-deductible coverage of high value services that treat chronic diseases has been introduced. The claims-based simulations reported here demonstrate that generous enhancements in HDHP prescription drug coverage for several chronic conditions would lower consumer out of pocket costs and result in only modest impacts on premiums or deductibles. Expanding the IRS "safe harbor" to permit coverage of high value prescription drugs prior to meeting the plan's deductible would increase the attractiveness and clinical effectiveness of HSA-HDHPs. Adoption of this policy has the potential to mitigate cost-related non-adherence, enhance patient-centered outcomes, allow for premiums lower than most other plan types, and substantially reduce aggregate health care expenditures.
- Cohen R, Zammitti E. High-Deductible Health Plans and Financial Barriers to Medical Care: Early Release of Estimates from the National Health Interview Survey, 2016. Atlanta, GA: CDC; 2017. https://www.cdc.gov/nchs/data/nhis/earlyrelease/ERHDHP_Access_0617.pdf.
- Kaiser Family Foundation. Health Insurance Coverage of the Total Population. https://www.kff.org/other/state-indicator/total-population/. Published September 2017. Accessed May 9, 2018.
- Claxton G, Rae M, Long M, Damico A, Foster G, Whitmore H. Employer Health Benefits 2017. Kaiser Family Foundation, Health Research & Educational Trust, NORC at the University of Chicago; 2017. https://www.kff.org/health-costs/report/2017-employer-health-benefits-survey/. Accessed May 9, 2018.
- Collins SR, Rasmussen PW, Beutel S, Doty MM. The Problem of Underinsurance and How Rising Deductibles Will Make It Worse: Findings from the Commonwealth Fund Biennial Health Insurance Survey, 2014.; 2015. http://www.commonwealthfund.org/~/media/files/publications/issue-brief/2015/may/1817_collins_problem_of_underinsurance_ib.pdf. Accessed May 9, 2018.
- Goldman DP, Joyce GF, Zheng Y. Prescription Drug Cost Sharing: Associations with Medication and Medical Utilization and Spending and Health. JAMA. 2007;298(1):61-69. doi:10.1001/jama.298.1.61
- Trivedi AN, Moloo H, Mor V. Increased Ambulatory Care Copayments and Hospitalizations Among the Elderly. N Engl J Med. 2010;362(4):320-328. doi:10.1056/NEJMsa0904533
- Chandra A, Gruber J, McKnight R. Patient Cost-Sharing and Hospitalization Offsets in the Elderly. Am Econ Rev. 2010;100(1):193-213. doi:10.1257/aer.100.1.193
- Chernew M, Gibson TB, Yu-Isenberg K, Sokol MC, Rosen AB, Fendrick AM. Effects of Increased Patient Cost Sharing on Socioeconomic Disparities in Health Care. J Gen Intern Med. 2008;23(8):1131-1136. doi:10.1007/s11606-008-0614-0
- Wharam JF, Zhang F, Eggleston EM, Lu CY, Soumerai S, Ross-Degnan D. Diabetes Outpatient Care and Acute Complications Before and After High-Deductible Insurance Enrollment: A Natural Experiment for Translation in Diabetes (NEXT-D) Study. JAMA Intern Med. 2017;177(3):358. doi:10.1001/jamainternmed.2016.8411
- Wharam JF, Zhang F, Eggleston EM, Lu CY, Soumerai SB, Ross-Degnan D. Effect of High-Deductible Insurance on High-Acuity Outcomes in Diabetes: A Natural Experiment for Translation in Diabetes (NEXT-D) Study. Diabetes Care. January 2018:dc171183. doi:10.2337/dc17-1183
- Agarwal R, Mazurenko O, Menachemi N. High-Deductible Health Plans Reduce Health Care Cost and Utilization, Including Use of Needed Preventive Services. Health Aff (Millwood). 2017;36(10):1762-1768. doi:10.1377/hlthaff.2017.0610
- Kaiser Family Foundation. Preventive Services Covered by Private Health Plans under the Affordable Care Act. https://www.kff.org/other/state-indicator/total-population/. Published August 4, 2015. Accessed May 4, 2018.
- Internal Revenue Service. Preventive Health Services Required under Public Health Service Act Section 2713 and Preventive Care for Purposes of Health Savings Accounts.; 2013. https://www.irs.gov/pub/irs-drop/n-13-57.pdf. Accessed May 4, 2018.
- Internal Revenue Service. Part III - Administrative, Procedural, and Miscellaneous.; 2004. https://www.irs.gov/pub/irs-drop/n-04-23.pdf. Accessed May 4, 2018.
- Internal Revenue Service. Part III - Administrative, Procedural, and Miscellaneous.; 2004. https://www.irs.gov/irb/2004-33_IRB#NOT-2004-50. Accessed May 4, 2018.
- Dieleman JL, Baral R, Birger M, et al. US Spending on Personal Health Care and Public Health, 1996-2013. JAMA. 2016;316(24):2627-2646. doi:10.1001/jama.2016.16885
- Lee JL, Maciejewski ML, Raju SS, Shrank WH, Choudhry NK. Value-Based Insurance Design: Quality Improvement but No Cost Savings. Health Aff (Millwood). 2013;32(7):1251-1257. doi:10.1377/hlthaff.2012.0902
- Smarter Health Care Coalition. http://www.smarterhc.org. Accessed May 4, 2018.
- Buxbaum JD, Mafi JN, Fendrick AM. Tackling Low-Value Care: A New “Top Five” for Purchaser Action. November 2017. https://www.healthaffairs.org/do/10.1377/hblog20171117.664355/full/. Accessed May 9, 2018.