Are High Deductibles a Good Thing? Part I

Because I am often called the “Father of Health Savings Accounts” people sometimes assume that I favor high deductible health insurance. I don’t. In fact, I don’t really favor deductibles at all. Deductibles, along with co-insurance payments, are very crude devices that give patients very imperfect incentives.

What I favor instead is self-insurance for many kinds of medical expenses, including almost all primary care and most diagnostic tests. Where third party insurance is involved I favor fixed payments — wherever practical – with the patient self-insuring for any additional expense. (See, for example, Anthem’s experiment with knee and hip replacements in California.)

In other words, I favor giving people the ability to purchase the healthcare they need, but 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 was a time when cost sharing requirements were thought to be a step in the right direction by many health economists. But in today’s environment, deductibles and copayments are being misused by insurance companies and employers who are perversely trying to attract the healthy and avoid the sick. They are doing so precisely because of public policies forced upon them by politicians who thought they were actually helping people with medical problems.