Question

Some firms offer their employees a health care plan with high deductibles, sometimes as much as \(\$ 4,500\) per year. What effect do high-deductible plans have on how often employees visit doctors or otherwise use health care services? If the federal government were to require that employer health care plans have deductibles that were no greater than \(\$ 200\) per year, would the employees in these plans be better off? Would the employers offering these plans be worse off? Briefly explain.

Short answer

High-deductible plans decrease the frequency of usage of healthcare services by employees. Lowering the deductible potentially increases usage, which could lead to better health outcomes for employees but could result in higher premiums for employers. The individuals who are better or worse off is dependent on different economic perspectives and trade-offs.

Step-by-step solution

Understand the Effects of High-Deductible Plans

In general, when the cost of a service increases, demand decreases. Hence, employees with a high deductible are likely to reduce their frequency of doctor visits and usage of health services to avoid costs. However, this does not necessarily suggest improved health, they might be avoiding necessary health checks due to the high costs associated.

Consider the Effects of Lower Deductibles

If the federal government requires employer health care plans to have lower deductibles, this could encourage more usage of health services. Lower costs might mean employees will be more open to seeking health checks and treatment when required. This could generally lead to better health outcomes amongst employees.

Establish the Impact on Employers

Employers might be worse off as they might have to pay more for the health insurance coverage. Lower deductibles generally mean higher premiums that might be partially or completely covered by the employers. However, in the long run, a healthier workforce may result in fewer sick days and higher productivity.

Summarize the Outcomes

Employees might be better off in terms of health as they can seek medical advice more freely. Employers initially bear higher costs, but may benefit in the long term due to a healthier workforce. Therefore, the answer to the exercise is dependent on the short-term versus long-term perspectives and various economic trade-offs depending on each party's standing.

Key concepts

Health Care Service Utilization

High-deductible health plans have a significant effect on health care service utilization. As individuals face higher costs upfront before their insurance starts to pay, they often become more cautious about seeking medical services. The reasoning behind this is rooted in the basic principles of economics. When faced with a deductible of, for example, \( \$4,500 \) per year, an employee may decide to only visit the doctor or use healthcare services when absolutely necessary, consequently reducing the overall usage of healthcare services.

This reduction in utilization might result in short-term savings on health care costs, but it could also lead to a decline in preventive care, as individuals may skip annual check-ups or wait until health issues become more severe and costly to treat. It's a classic case of 'penny wise, pound foolish' where less immediate spending could lead to higher long-term health and financial costs. Additionally, delayed treatment can exacerbate medical conditions, potentially leading to an increase in emergency hospital visits, which are far more expensive than preventative doctor appointments.

Employee Health Outcomes

Employee health outcomes are directly impacted by the structure of their health insurance plans. With high-deductible health plans, some individuals might delay or forego necessary medical attention due to cost concerns, possibly leading to poorer health outcomes over time. Preventive care, often seen as a cornerstone of overall health maintenance, becomes less accessible due to the upfront costs associated with high deductibles.

Conversely, if deductibles were lower, as in the hypothetical scenario where the government mandates a maximum of \( \$200 \) deductibles, employees may be more inclined to take advantage of preventive services and seek timely care for health issues. This increased accessibility to healthcare could lead to early detection of diseases, better management of chronic conditions, and overall healthier lifestyles. In turn, improved health outcomes may contribute to a more productive workforce, with fewer absences due to illness and enhanced work performance, thereby contributing positively to both the employee's wellbeing and the employer's operational effectiveness.

Employer Health Insurance Costs

The cost implications for employers offering health insurance are substantial and are closely tied to the design of the health plans they provide. High-deductible plans may initially seem more cost-effective for employers because they often come with lower monthly premiums. The reduced usage of health services by employees looking to avoid high out-of-pocket expenses can translate into lower short-term costs for employers.

However, this perspective changes when considering the potential long-term effects. Lowering deductibles to a mandated cap of \( \$200 \) could result in higher premiums for employers, increasing their immediate financial burden. But, there is a silver lining. A healthier workforce, which is more achievable with lower deductibles, can decrease the frequency and severity of health insurance claims over time, possibly leading to more stable or reduced premium costs in the long run. Furthermore, healthier employees can lead to increased productivity, fewer sick days, and overall better employee morale, which can indirectly but positively affect the employer’s bottom line.