For many individuals with employer-provided health insurance, a recent paper by Liu and Sydnor (2022) find that this is indeed the case. The authors use data from the 2011-2016 Kaiser Family Foundation (KFF) Employer Health Benefits Survey (EHBS). The authors examine the maximum out-of-pocket cost (including both premiums and maximum cost-sharing) as well as whether the high-deductible health plans (HDHP) dominate more traditional insurance options.
We find that counter to what most would expect, high-deductible plans offer employees lower worst-case spending risk at 62 percent of the firms. The savings to employees for choosing HD plans, stemming from lower employee premiums and additional contributions firms make to health savings or reimbursement accounts, often exceed the additional out-of-pocket maximums people face in the HD plans…
We estimate across all firms offering both types of plans that employees would save over $500 per year by selecting the high-deductible option for a wide range of different ex ante medical spending distributions the employee might face. At the firms where the high-deductible plan strictly dominates the alternative, the expected savings from selecting the HD plan are frequently over $1,000 for the year
Why are HDHP’s more favorable for employees? The answer is not that employers are differentially providing more premium support. They authors find that on average firms contribute approximately the same total dollar amount toward premiums for both HDHP and traditional health plans types. However, many employers also contribute additional funds for employee’s health savings accounts (HSAs) which are linked to the HDHPs. In many cases, the HSA contribution makes it so that the HDHP may strictly dominate for traditional plan types for many individuals.
Appendix: Transforming complex cost sharing rules into simplified schedules
The authors transform complex cost sharing rules into expected out-of-pocket expenses following a paper by Ericson et al. (2021). The approach is described below:
- Calculate each plan’s actuarial value (AV), (i.e., percentage of all medical spending covered by insurance), using the CMS Actuarial Value Calculator (see methodology here)
- The authors generate a simplified plan based on three parameters: (i) deductible, (ii) maximum out-of-pocket (MOOP) expense, and (iii) coinsurance rate between the deductible and MOOP. The deductible and MOOP are known from the KFF EHBS and the coinsurance rate is solved so that the it generates a plan with the same AV.
- Calculate premiums for each plan. For this paper, the authors treat contributions to an individual’s health savings account as equivalent to premium reductions.