Wednesday, July 8, 2015
JAMA Internal Medicine
The Veiled Economics of Employee Cost Sharing
By Katherine Baicker, PhD; Amitabh Chandra, PhD
This year, once again, millions of people in the United States who get
health insurance through their employers received the unwelcome news
that cost sharing would increase.
At first blush, it might seem that cost sharing is just a way of
dividing up whether employers or employees pay the bills, but decades of
evidence show that lower cost sharing leads patients to consume more
care of limited health value—such as unnecessary tests—and that this
consumption leads to higher health insurance premiums. Cost sharing can
thus mitigate the premium increases that would be needed to expand
coverage to new services—many of which may particularly benefit patients
with serious illnesses.
The potential usefulness of cost sharing does not, however, mean that we
would all be better off with across-the-board increases in cost sharing.
First, insurance provides crucial financial protection against
potentially catastrophically high health expenditures. Patient cost
sharing erodes the value of the risk protection that health insurance
provides. The benefit of reducing the overuse of medical services that
is inherent in subsidizing health care must be balanced against the cost
of losing financial protection when it really matters. A
disproportionate share of health spending is for a relatively small
number of people requiring very expensive care. Any insurance plan with
adequate protection against catastrophic out-of-pocket spending (such as
an annual out-of-pocket maximum of $10 000) will leave a substantial
share of health care expenditures in excess of that maximum, and thus
not subject to cost sharing. Second, as we have discussed, a given
dollar amount of cost sharing has different implications for people with
different incomes, suggesting that optimal cost sharing might increase
with income. At present, this feature is seen more in cost-sharing
subsidies for low-income enrollees in some public plans than in
employer-sponsored health insurance. Third, patients facing higher
deductibles and copays may reduce care of high value (such as adherence
to effective medications) along with the care of low value (such as
tests that are not recommended). The evidence suggests that more
sophisticated cost sharing, such as higher copays for care of
questionable health benefit, might encourage higher-value health care
spending and stem the growth of health insurance premiums. Examples are
"carve-outs" that protect preventive care from copayments and
"value-based" insurance plans that subsidize medications that help keep
patients out of the hospital.
These caveats do not mean that cost sharing should be eschewed as a tool
to improve value—but rather that cost sharing should be deployed in a
more nuanced way than it is now. If enabled by regulatory changes and
health care system reforms, cost sharing based on the value of care and
scaled by income could improve health, slow increases in health
insurance premiums, and increase take-home pay.
Tracking Trends In Provider Reimbursements And Patient Obligations
By Katherine Hempstead, Iyue Sung, Joshua Gray and Stewart Richardson
ACAView attempts to capture how health reform affects the day-to-day
practice of community-based medicine. The project has collected data on
more than seventeen million visits to nearly 15,000 providers in 2013
Patients' payment obligations rose for all specialties, and deductibles
were the largest category of increased patient spending.
From the Conclusion
Coverage expansion in the United States has benefited millions of
people. However, the high out-of-pocket expenses that many people are
facing may cause some to forgo nonurgent care. The overall implications
for providers are unclear. Increased bad debt is one potential outcome.
It will be important to monitor changes in patient obligation and
provider reimbursement as the effects of coverage expansion, risk
contracting, and narrow networks continue to unfold. The degree to which
these changes may affect access to care for low-income insured patients
and debt levels for providers in particular deserves close scrutiny.
Comment by Don McCanne
Can we balance the benefit of spending reductions associated with high
deductibles and other cost sharing with the potential reduction in
beneficial health care services that can result from patient exposure to
out-of-pocket expenses as a prerequisite for health care access? Perhaps
a better question is, should we?
Although Katherine Baicker and Amitabh Chandra support high deductibles
and other cost sharing as a means to slow the increase in health care
spending, they do recognize the problems with this approach to cost
containment, for example: 1) the erosion of protection against the
financial risk of essential health care services, 2) the ineffectiveness
of cost sharing for most of health care spending - the catastrophic
costs of the minority who have major health care problems, 3) the
negative impact of cost sharing on those with lower incomes, and 4) the
decrease in the use of high value care because of the financial barriers
of cost sharing.
Rather than abandoning their support of the consumer-directed approach
of increasing patient sensitivity to health care costs through
out-of-pocket cost sharing, Baicker and Chandra recommend improving cost
sharing by taking into consideration income levels, chronic disease
status, and the relative value of the health care services provided. As
if applying cost sharing was not already administratively burdensome,
imagine applying these three adjustments to each patent's cost sharing.
Even then, the benefits of these adjustments would be only relative
since you cannot eliminate 100 percent of the financial hardships, nor
ensure that patients would receive 100 percent of the essential health
care services that they need.
When you consider that most health care spending (about 80 percent) is
not subject to cost sharing, you really have to give more thought as to
whether this decades-long experiment in cost sharing is worth continuing.
It is not as if we don't have a far better option. With a single payer
system, monopsonistic price setting would obviate the need for patient
price shopping. So then the only purpose for cost sharing would be to
reduce the use of "low value" services. Beneficial services that some
may consider to be of low value, but not of no value, are commonplace
today, and who is to say that we should establish policies that impair
access to that care? On the other hand, services that clearly have
absolutely no diagnostic nor therapeutic benefit would simply be
excluded from coverage.
The system would be 100 percent effective in preventing financial
hardship due to medical bills and 100 percent effective in removing
financial access barriers, while slowing the rate of increases in health
care spending down to that of other industrialized nations. You would
have the cost containment that we need without the injustices and
profound administrative waste of our fragmented, multi-payer system.
Perhaps Harvard's Baicker and Chandra, with their PhDs, should sit down
with Himmelstein and Woolhandler, with their MDs, and have a frank
discussion of priorities in reform - like placing the patient first, as
a single payer system would.
at 5:25 PM