(Bloomberg View) — This weekend, in the New York Times, Robert Pear wrote about the high deductibles of the exchange policies that most people are buying. While some things, such as birth control and an annual wellness visit, must be covered, effectively these are catastrophic policies that require people to spend a considerable amount of money out of pocket before the coverage kicks in. This has come as quite a shock to many; as one person told Pear, “When they said affordable, I thought they really meant affordable.” Which it is — if you don’t get sick.
This is actually good insurance design. Insurance that covers routine expenses isn’t really insurance; it’s a sort of inefficiently expensive prepayment plan. If Obamacare forces people away from “first dollar” coverage with low or no deductible, and toward plans that cover people only for unanticipated emergencies, that would be a win for economic logic.
The problem with this is two-fold: First, unless they’re pegged to income, high deductibles are regressive, forcing the poorest people to pay the largest share of their income. And second, people absolutely hate economically logical health care plans. This is why you see unions giving up quite a lot of other concessions on wages and benefits in order to keep those gold-plated health care plans.
The regressiveness of the deductibles is mitigated by Obamacare’s cost-sharing reduction subsidies, which limit your deductibles if you make less than 250 percent of the federal poverty line (about $60,000 for a family of four). But those subsidies are available only on Silver plans, which carry higher premiums. And economically strapped families often have trouble spending more money now to save money later.
Regardless of subsidies, the political problem remains: Insurance on the exchanges is quite expensive considering how high the deductibles are, and how limited the provider networks are.
That’s making people unhappy, and seems likely to generate political pressure to make the policies more generous, which is to say, more expensive. It’s also a market problem.
Over the past five years, health care wonks have started to see health insurance less as a way to ensure health, and more as a way to avoid financial disaster. (As one health care economist told me, the results of the Oregon Medicaid Study, which raised questions about how much insurance really improves health, actually aren’t that surprising. Insurance is a financial product, and what it does really well is give people financial protection.) In other words, the alternative to buying health insurance may not be “dying young”; it may be bankruptcy, or at least, a trashed credit report after you’ve negotiated settlements on all your medical bills.
That substantially changes the calculation people make when they decide to buy insurance. Bankruptcy is terrible. But you’d probably pay a lot less for bankruptcy insurance than you would for insurance that actually made you healthier. Especially if high deductibles mean you’re going to face a trashed credit report either way. This may, in fact, be the calculation that people were making before Obamacare passed — and may explain why uptake has been slow among people who don’t qualify for large subsidies.