When people are spending below their deductible they will not spend a dollar unless they expect to get a dollar’s worth of value. But when they are above their deductible they may spend a dollar even though the service is worth far less than what they pay. If they have a 20% coinsurance rate above the deductible, they will tend to spend until healthcare is worth only 20 cents on the dollar.
As I wrote in a previous post, deductibles and co-insurance payments are very crude devices that give patients very imperfect incentives. A better approach is to allow people to self-insure for whole categories of medical expense, including almost all primary care and most diagnostic tests. Self-insurance is also a promising way to fund much of chronic care.
An ideal way for patients to self-insure is with a Health Savings Account or HSA. A properly designed HSA, combined with third party insurance, can give people the ability to purchase the healthcare they need, while allowing them to make marginal decisions between health services and others uses of money undistorted by taxes, third-party reimbursement or any other artificial intrusion. There is no need for deductibles or co-insurance in an ideally designed heath plan.
But wait a minute. Aren’t HSAs associated with inflexible, across-the-board deductibles? They are indeed. In fact high deductibles are required by law. Why is that? Mainly because of an accident of history.