Thursday, October 31, 2013

Reverse deductible creates incentive to shop for healthcare

Here is how it works.  One employer noticed that it was paying between $20,000 and $120,000 for a single surgery.  The employer said it would pay up to $30,000 for the procedure, and identified 41 hospitals that charged less than this.  Patients were free to go to higher priced hospitals, but they had to pay the difference.

Guess what happened next:

Half of the high-price hospitals cut their rates, many by a considerable amount....Across all hospitals, prices charged to Calpers for joint-replacement surgery declined by 26% in the first year and by even more in the second.

HT:  Nick


  1. Interesting to see the Stossel video state that laser eye surgery is generally not covered by insurance plans. . . and somehow have reduced in price over the years. Seems like this should also be possible for MRI's and other procedures that have been around for ages.

  2. Luke- This is the wave of the future- its a good thing too

  3. This seems like it would be a wise model for the insurance premium subsidies offered through the ACA as well. As it currently stands, the government will subsidize individuals for any cost for plan premia above a certain percentage of his income. This means that an individual is indifferent between a plan that is $1 above his limit or $10,000 above his limit. If the reverse deductible idea were applied to this system by giving the individual a defined contribution toward his premium, he would retain price sensitivity for any plan he purchased as long as it cost more than the subsidy.