The Rise of High Deductible Health Plans
The U.S. Commerce Department’s Bureau of Economic Analysis (BEA) recently announced that healthcare spending costs rose 9.9 percent in the first quarter of 2014, which was the largest quarterly increase in more than 30 years. The continued rise in healthcare spending costs has a direct effect on the entire United States population, but most directly effects consumers via overall higher healthcare costs including higher insurance premiums. As highlighted in the chart below, which was published by Kaiser Family Foundation, a nonpartisan healthcare trends researcher, the average annual insurance premium for a family increased approximately 7 percent compounded annually from $8,003 in 2002 to $15,745 in 2012 while the individual amount increased by approximately 6.2 percent compounded annually from $3,083 in 2002 to $5,615 in 2012. As a result, consumers are searching for some relief in their healthcare spending. One increasingly popular option is the growth of High Deductible Health Plans (HDHP). Imaging center operators need to take notice.
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An HDHP is simply defined as a health insurance plan with lower premiums and higher deductibles than a traditional health plan. HDHP’s were traditionally considered and utilized as a form of catastrophic coverage which was intended to cover the high level of expense associated with catastrophic illnesses. According to a study by the Kaiser Family foundation, employers reported that just 4 percent of their workers were covered by some type of high deductible plan in 2006. Recently, this number has climbed to approximately 20 percent with large employers more likely to offer this type of plan. Kaiser found that 43 percent of firms with 1,000 or more workers had an HDHP as an option.
By choosing an HDHP over a traditional health plan, there is a tradeoff for the consumer; a lower health care insurance premium on a month-to-month or annual basis, but a higher deductible and an increased financial burden should one become ill. In exchange for a relatively low annual or monthly premium when compared to the traditional health plan, the insurance benefits do not kick in until the consumer has met their annual deductible which is much higher than the traditional health plan—often $3,000 or more in many cases. The lower premium for the HDHP is the primary appeal for most consumers and may be a good fit for younger healthy individuals. However, there could be significant financial strain and upfront costs for the patient considering for example, the average cost of an MRI scan ranges between a few hundred dollars to a few thousand dollars depending on which MRI procedure is performed and where the MRI test is performed.
The questions for imaging center operators to consider when evaluating their HDHP patient base, will these patients be more willing to delay or forego outpatient imaging services when they really need it if they know they are liable for a large upfront deductible? If patients do decide to delay their services, how long will they be willing to delay? The typical insurance plan deductible is tracked on an annual basis and is re-set effective January 1st of each year. As a result, some patients have historically tried to postpone their imaging services until they could catch up or at a minimum, partially catch up to their annual deductible amount to avoid the large upfront payment required. This has historically negatively affected the quarter 1 scan volumes for imaging providers around the country. Conversely, the quarter 4 scan volumes have often times been very strong and have offset the weaker quarter 1 operations with patients trying to schedule their procedures before the end of the calendar year. With the continued growth of HDHP enrollment around the country, this trend appears likely to continue and potentially extend further into each calendar year. Leadership for outpatient imaging centers should consider the following questions related to HDHP’s and the potential implications on their business:
- Will payment for services rendered to patients with a HDHP be required in full on the date of service?
- Will a payment plan be considered by the imaging provider if payment cannot be made in full by the patient on the date of service?
- Will imaging providers offer a transparent listing of services and prices to the patient prior to services being rendered?
- How aggressively will patients shop prices and their out-of-pocket expense to all of the local imaging providers?
- What is the level of competition from the other imaging providers in the local marketplace? Are there multiple options for patients in the local marketplace offering a similar level of clinical care?
The answers to these questions may prove to be vitally important to the imaging providers to retain their current scan volume, potentially grow their future volumes and to create a sustainable business model given the many recent changes in the outpatient imaging industry.