High Deductible Plans Lead to Increase in Bad Debt, Hospital Says

September 08, 2014

VTDigger

By Morgan True

The state’s second-largest hospital says high deductibles and out-of-pocket costs for some health insurance plans sold through Vermont Health Connect are contributing to its rising bad debt.

Rutland Regional Medical Center is projecting that its uncollectible accounts will grow by $729,151 this year over last, an increase of close to 10 percent in the first year of the state’s health exchange marketplace.

A portion of that is due to the increase in people choosing health plans with high out-of-pocket costs, according to the hospital’s budget presentation to state regulators last month.

Hospitals’ bad debt is the portion of revenue for medical services that is lost when people receive care, but can’t — or don’t — pay for all or part of those services.

Advocates have consistently expressed concern that the deductibles and out-of-pocket limits in Vermont Health Connect are more than many people can afford.

A deductible is the amount of money a customer pays before their insurance kicks in, and the out-of-pocket limit is the total amount they could pay, on top of premiums, toward health services while covered. High-deductible plans cost less in premiums than those with lower deductibles.

Blue Cross Blue Shield of Vermont, which covers 92 percent of the commercial customers on the exchange, says 27 percent of those people bought high-deductible plans.

Those plans have deductibles for individuals of between $2,800 and $5,000, with out-of-pocket limits of up to $7,000. For a family, the deductibles are between $5,100 and $10,000 with out-of-pocket limits of up to $15,000.

High-deductible plans can be paired with a health savings account, which allow people to save pre-tax income to be spent on health care costs, but can’t be used toward premiums.

There are subsidies to lower the out-of-pocket costs, known as a cost-sharing reduction, but they’re only available for the silver metal-level plans. Silver plans are the most popular plans on the exchange in its first year.

They account for 46 percent of the plans Blue Cross sold, according to the insurer. Figures from the state show 54 percent of the total individual market bought silver plans.

Roughly 70 percent of people in the individual market are receiving a cost-sharing subsidy, according to the state’s figures. But even with those subsidies the deductibles and out-of-pocket costs can be significant.

“Even though they’re not specific ‘high-deductible’ plans, it can still seem like a high deductible for someone who has to meet it,” said Donna Sutton-Fay, policy director for the Vermonter Campaign for Health Care Security education fund.

For individuals with annual income of $23,000 or less, or a family of four making $47,100 or less, the cost sharing subsidies can reduce out-of-pocket limits to between $500-$1,250 and $1,000-$2,500, respectively.

That’s still between 2 percent and 5 percent of their annual income, and does not include premiums. The state’s data show that roughly 40 percent of people receiving a cost-sharing reduction in the individual market fall into that category.

For individuals making $34,500 or less, or a family of four making $70,650 or less, the out-of-pocket limits with subsidy are close to 11 percent of annual income.

High deductibles and out-of-pocket costs deter the overuse of medical services, but can also discourage people from seeking treatment.

The latter is the concern of advocates like Fay, who worry people with high levels of cost-sharing in their health plans won’t reap the benefits of being covered.

Hospitals, such as Rutland Regional, have made it clear they expect people with high cost-sharing in their coverage will instead seek care they can’t afford, thereby increasing hospital’s uncollected debt.