Bloomberg editors question out-of-pocket costs

Bloomberg View
February 16, 2015
Out of Pocket, Out of Control
By The Editors

Obamacare's goal to expand access to health care has been only half a
success: More Americans have insurance, but a rise in cost sharing means
fewer can use it. Copayments -- those predetermined charges you pay at
the doctor's office -- are a big part of the problem. In recent years,
they've risen to the point where they no longer work as they're meant to.

In theory, charging moderate fees to see a doctor or get a procedure
gives people an incentive to consider whether they really need it. Done
carefully, copays can thus reduce unnecessary spending, benefiting everyone.

That means the charges have to be just large enough to influence
people's decisions, and not so big as to keep people from getting the
care they need. Yet copays have been going up significantly. In the past
five years, the average price to see a primary care doctor has risen 20
percent. For a specialist it's gone up 29 percent, and for outpatient
surgery it's up 43 percent. And that's just for employer-sponsored
insurance; on average, those covered through the Affordable Care Act's
exchanges face even higher expenses.

No wonder 22 percent of people now say the cost of getting care has led
them to delay treatment for a serious condition. That's the highest
percentage since Gallup started asking in 2001. Another poll found that
as many as 16 million adults with chronic conditions have avoided the
doctor because of out-of-pocket costs.

The wisdom of copayments also relies on the notion that consumers
understand the incentives the payments are supposed to impose. Yet
almost two-thirds of Americans don't know what costs they face for using
an emergency room or a walk-in clinic, a recent survey found.

When copayments grow too big and confusing to be effective cost
controls, they merely shift an ever-greater share of insurance costs
away from premiums. And this undermines the basic purpose of insurance,
which is to spread the risk of unforeseen costs across populations and
over time -- among not just the minority who need care, but also
everyone covered by the plan. Unlike premiums, out-of-pocket payments
concentrate spending on the few who get sick.

Canada has disposed of almost all out-of-pocket costs for doctor and
hospital services since 1984 -- and still spends half as much per person
on health care as the U.S. does. While Canadians are more likely to see
a doctor in any given year, they're less likely than Americans to wind
up in the hospital.

Rather than ban copayments entirely, however, the U.S. could make better
use of their ability to steer people away from high-cost, low-value care.

The government should also look at extending copay subsidies to
lower-income beneficiaries on employer plans and lowering the cap on
out-of-pocket costs.

http://www.bloombergview.com/articles/2015-02-16/after-obamacare-health-care-reform-needs-to-curb-costs

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Comment by Don McCanne

It is reassuring when we see representatives of the business community
shining light on the deficiencies in our system of health care
financing. In this article, the editors of Bloomberg View explain that
higher out-of-pocket spending shifts costs away from premiums, which are
designed to spread the risk, and instead concentrates spending on those
who get sick. As they state, this undermines the basic purpose of insurance.

As they explain. "Canada has disposed of almost all out-of-pocket costs
for doctor and hospital services since 1984 -- and still spends half as
much per person on health care as the U.S. does."

However, the Bloomberg editors, like most of the policy community, as a
principle of faith insist that we must still have modest copayments as
an incentive to deter low-value care. As if the administrative waste of
managing deductibles, copayments, and coinsurance were not already
enough, they would add further to these administrative excesses by
applying income-indexed subsidies to the copayments of
employer-sponsored plans, just as has been done with the ACA exchange plans.

Canada has shown us that the policies inherent in their single payer
system are far more effective in controlling excess spending than are
our feeble, market-based policies such as cost sharing. The differences
in the health spending trajectories of the two nations are proof enough;
Canada has bent the cost curve and we have not. Cost sharing has hardly
had even a negligible impact in our total spending.

We do know that cost sharing can impair access to necessary care and
create financial hardships for some. Since it hasn't controlled costs
and single payer would, we should make the change to a single payer
national health program with first dollar coverage. That would pool
risks and improve access without creating burdens for anyone, except
maybe a transitional burden for those in the insurance industry who
would have to find more gainful employment.