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Why Health Insurance Companies Hate High Deductible Plans

Joe Biden unveiled a White House study on the rise of health insurance premiums.  He pressed for consumer protections the President wants to see in any reform legislation.  Among these are a pledge to pass a law that “ends exorbitant out-of-pocket expenses, deductibles or co-pays.”  Presumably this is meant to address worries many feel over the growth of high-deductible health plans.

The St. Petersburg Times looked into it to find out what this pledge means, in practical terms.  David Axelrod at the White House pointed them to the proposed House legislation, which would create limits on out-of-pocket expenses, deductibles and co-pays of $5,000 a year for an individual, and $10,000 a year for a family.

It sounds like they’re drawing a line in the sand.  But how does it compare to existing law?

Well, for a plan to qualify as a “high deductible health plan” for federal tax law purposes, it has to have a maximum limit on annual deductible and out-of-pocket medical expenses.  For 2009, that amount is $5,800 for an individual, and $11,600 for a family.

I guess the line between “exorbitant” and “not exorbitant” is somewhere between $5,000 and $5,800.

But it raises another question:

How does the strident rhetoric against insurance companies measure up against what’s actually being proposed?

The issue of high deductibles is a good example.

Although plans with high deductibles may not be appropriate for people with lower incomes or those with chronic illnesses, a high deductible plan can work well for young, healthy people who are unlikely to claim on their insurance.  They can be especially good for employers, many of whom have found that when implemented the right way, they can lead to significant improvement in health care costs.

On the other hand, for the insurance company, a high deductible plan is not so good.

A young, healthy person paying $2,000 a year for a policy he never claims on is far less appealing than that same young, healthy person paying $6,000 a year for a policy he never claims on.  This is true even if the insured is sick – as the insurer you’d rather collect the extra premium one way or the other.

So what does this have to do with the promise to end “exorbitant” out of pocket expenses?

I suspect the insurers want to make sure that if there is going to be a federal mandate to buy health insurance that as many people as possible buy the lowest deductible, highest cost policy the market will bear.  Some of the maneuvering in Congress around premium levels and benefit packages surely looks like it is designed to calibrate exactly where that optimal price point is.

Are the health insurers companies playing the role of the villains in the health care reform sales pitch? Yes – but in real life, the story seems to be very different.

The insurers aren’t against these bills – the opposite, in fact.  Their stock prices are up, likely because, as the Vice President said yesterday, reform promises to bring them a “bounty” of new customers.  The more you read of reform proposals, the more favorable they seem to the insurers.

As a wise man once said, don’t believe the hype.

*This blog post was originally published at See First Blog*

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