Fun (Facts & Fiction) With Numbers: Health Care Edition

The graph below, courtesy of the Kaiser Family Foundation, is featured in a VOX post purporting to explain why your health bills are gettng larger (all in one chart!).

kff deductiblesThe article focuses on the fact that deductibles have risen so dramatically as a major explanation for why it seems like we’re spending so much more on health care, even as health care expenses have been growing more slowly. There is some truth in the claim, and especially to the argument that people are more careful spending on health care when they have to pay for more of it up front, but there are some serious problems with this chart that can lead one to some pretty wrong conclusions.

First, what the graph doesn’t reflect is that the increase in premiums and the increase in deductibles are not, as the picture would appear, necessarily moving together for the people paying them. These are averages, and averages hide lots of information. Moreover, the graph makes it look like the two are increasing are independent of one another; i.e., that people are paying both 24% more in premiums and 67% more in deductibles since 2010. But that’s not the case. Since the ACA, many employers have moved to high-deductible plans that have lower premiums than the low-deductible plans that were popular pre-2010 (see below). What the graph hides is that people with low-deductible plans have seen higher than 24% increases in premiums while people with high-deductible plans have seen much lower increases in premiums–if not actual reductions in their premiums. What has changed is not necessarily how much people are paying for healthcare, but how they are paying it: in premiums or in deductibles. The graph above fails to show that.

Second, looking more closely at the news release on the Kaiser website, the 67% increase in deductibles is an increase in total deductibles paid–not the increase in the average deductible per employee. It reflects not only any increase in deductibles, but the increase in the number of people who have (higher) deductibles. That’s a pretty sneaky way to inflate the numbers on the graph to make it look like the average person is actually paying that much more. Consider the following two graphs, also from the Kaiser Family Foundation 2015 survey. kff-mkt-share-type kff-premiums The table on the left shows that premiums for high deductible plans (HDHP/SOs) are significantly lower than premiums for other types of policies. The table on the right shows that the market share of HDHP/SO plans has increased tremendously since gaining ground in 2006. In fact, to relate this to the first graph above, participation in HDHP/SO plans almost doubled from 2010 to 2015, meaning that 50 points of the 67% increase in deductibles could be attributable solely to more people choosing high deductible plans, specifically because the premiums are so much lower. And what the Kaiser report doesn’t say is how much employers contribute to the HSA plans that often accompany HDHP/SO plans. For some individuals, switching to the HDHP/SO plan may actually reduce their total out-of-pocket expense for health care. So while the original graph makes it look like everyone is paying more, that is likely not true for many people–and certainly not at the rate the original graph might suggest.

Finally, because the first graph is in percentages, it hides even more information that changes the story. Suppose deductibles had been $500 and increased to $1,000 or even $2,000. That’s would be a 100-300% increase! 300%! But that’s only $1,500. Not that $1,500 is chump change, but compared to the average annual premium of $6,251 (see the left-hand table above), that’s just 24%–ironically, about the total increase in premiums over the past five years. Even if that $500 deductible grew at the 67% shown in the first graph (which we know from #2 that it didn’t), the increase in actual out-of-pocket health care costs would have been $335–not quite the cost of two lattes a week.

Mark Twain is famously quoted as saying (and actually quoting Disraeli), “There are three kinds of lies: lies, damned lies and statistics..”  I’m not saying VOX (or Kaiser) are lying. But be careful when you see things like VOX’s report about some “fantastic new chart.” It’s far too easy to be misled if you don’t think carefully about the numbers being thrown about.

Bonus: If you’re interested in what the research says about the effects of high deductible plans, RAND has a nice summary site with links to additional resources.

Health Insurance Mandate Increases the Federal Deficit….?

A new report by the Congressional Budget Office (CBO) suggests that eliminating the mandate for purchasing health insurance would actually reduce the federal budget deficit by $305 billion. How? Because the estimated additional 14 million people in 2025 who would choose not to be insured would save the government roughly $311 billion on subsidies and health care expenses, while sacrificing $6 billion in revenues from the expected penalties (or taxes, depending on how you follow Chief Justice Roberts’ logic).

Two important observations:

  1. 14 million uninsured people?! Yes…but that would be the expected total to 41 million in 2025 (meaning even with Obamacare as it currently is, the CBO expects 27 million uninsured people anyhow).
  2. Another consequence of eliminating the mandate: insurance premiums for those who DO purchase insurance are estimated to go up another 20% on top of existing expected rate increases. This reflects the free-riding problem that led to the mandate being implemented to begin with: people who have low expected health care expenses (i.e., healthier people) are the very ones most likely NOT to buy insurance. Without the healthier people in the risk pool, the expected cost of caring for those who DO buy insurance goes up, which increases the cost to the insurer–and that cost is going to be passed along to the people who buy the insurance. So without the mandate, the health care costs are covered by the people who value the insurance enough to participate (i.e., the ones who expect to benefit from having it available). The mandate forces healthier people (who expect not to need medical care) to subsidize the cost of care for everyone else by paying more into the risk pool than they expect to get back from it.

You can see the CBO’s preliminary estimates here.

A Glimpse Behind The Health Care Curtain

Kudos to the Obama Administration for taking the first step toward “reforms” that could actually have a helpful effect on health care costs in the U.S. No, it has nothing to do with the so-called Affordable Care Act. Rather, the Center for Medicare and Medicaid Services has, for the first time, released data not only on the amounts hospitals bill for Medicare-covered services, but the amounts the hospitals were paid as well.

One of the biggest hindrances to cost savings and efficiency in the health care sector is the lack of transparent pricing information. (The other is the fact that consumers of health care typically don’t pay the bills directly, so they generally don’t take cost into account when deciding whether to consumer health care services. But that’s another can of worms.) An article in the March 10, 2011, issue of The New England Journal of Medicine explains the important role price transparency could have in reducing the upward trend in health care costs. Likewise, the November 2008 issue of Health Affairs includes articles explaining how a lack of transparency in the price of medical devices increases hospitals’ costs (and hence, insurers’ and patients’ costs).

Price transparency, if nothing else, allows researchers, insurers, patients and (almost unfortunately) policy makers to identify high- and low-cost providers. And the variance can be very large, even within local markets. For instance, where I live (Columbia, MO), there are two major hospitals (or hospital systems): University of Missouri Health Care and Boone Hospital. A quick review of the Medicare data shows that University Hospital charges prices that are, on average across DRGs, 42.6% higher than Boone Hospital–with charges for some codes more than 100% and as much as 150% higher.

Of course, what a hospital charges and what it receives under Medicare agreements are different things. In every case, even when the price UMHC charges is lower than Boone’s, UMHC receives more money for each DRG paid, and on average receives 49% more in payments than does Boone. For no diagnosis category listed does UMHC receive less than 9% more than Boone (and the top DRG is 99% more).

Now, UMHC is a teaching hospital, part of the University of Missouri School of Medicine. Medicare guidelines recognize the additional cost and value of training new doctors and allows for higher reimbursement rates. However, one should ask the question of whether–on average–a 49% cost premium is appropriate. UMHC is also a Level 1 trauma center, which may be associated with higher costs–or higher cost treatments. However, the data are reported based on DRGs, which should control for much of the variation in the types (and costs) of medical services being reimbursed.

There are undoubtedly explanations for some of these observed differences. But without the data available, the questions cannot even be asked. And until such questions are asked, there is a lower likelihood of meaningful reform in the actual cost of healthcare. Perhaps this initial glimpse behind the curtain of healthcare costs will lead to even greater transparency in the future; not just after the fact (these data are for 2011), but for consumers who may be deciding how to spend their healthcare dollars.

As I wrote this, I couldn’t help but think of this movie clip. Enjoy!