An interesting question for insurers regards the impact of PPACA on HDHP/SO type insurance plans. More on that topic in a future blog post.

For now, consider a simplified version of the economic reasons to shift from a conventional insurance plan to a HDHP/SO plan. In order to make the shift, the costs of the HDHP must be lower than the costs of the conventional plan. Here is an attempt to model that relationship:

That is, the monthly premium for the HDHP plan multiplied by 12 months in a year plus the price of the HDHP deductible multiplied by the probability of paying the deductible must be less than the same measures for a conventional health insurance plan. If this relationship holds, the shift will occur. If we solve this relationship for the optimal probability of switching plan types, we get the following:

If the probability of using the deductible is less than the difference between monthly premiums divided by the difference between deductibles, then the switch will occur. There are obvious limitations to such a simple model (such as the failure to include coinsurance and copayments), but it empowers the reader to think about why HDHP type plans are adding enrollees. This model suggests that a lower perceived probability of needing the deductible will lead to an increased number of HDHP enrollees.

To add power to the prediction of increased HDHP enrollees, consider that most high deductible plans offer free preventative care. Preventative care will decrease the perceived probability of needing the deductible, thus increasing enrollees in high deductible plans.

Pending all too likely legal shifts in incentives, high deductible health plans with savings options will become the insurance type with the highest number of enrollees in the near future.