Wednesday, October 14, 2015
The National Bureau of Economic Research
NBER Working Paper No. 21632
What Does a Deductible Do? The Impact of Cost-Sharing on Health Care
Prices, Quantities, and Spending Dynamics
By Zarek C. Brot-Goldberg, Amitabh Chandra, Benjamin R. Handel, Jonathan
Measuring consumer responsiveness to medical care prices is a central
issue in health economics and a key ingredient in the optimal design and
regulation of health insurance markets. We study consumer responsiveness
to medical care prices, leveraging a natural experiment that occurred at
a large self-insured firm which forced all of its employees to switch
from an insurance plan that provided free health care to a non-linear,
high deductible plan. The switch caused a spending reduction between
11.79%-13.80% of total firm-wide health spending ($100 million lower
spending per year). We decompose this spending reduction into the
components of (i) consumer price shopping (ii) quantity reductions (iii)
quantity substitutions, finding that spending reductions are entirely
due to outright reductions in quantity. We find no evidence of consumers
learning to price shop after two years in high-deductible coverage.
Consumers reduce quantities across the spectrum of health care services,
including potentially valuable care (e.g. preventive services) and
potentially wasteful care (e.g. imaging services). We then leverage the
unique data environment to study how consumers respond to the complex
structure of the high-deductible contract. We find that consumers
respond heavily to spot prices at the time of care, and reduce their
spending by 42% when under the deductible, conditional on their true
expected end-of-year shadow price and their prior year end-of-year
marginal price. In the first-year post plan change, 90% of all spending
reductions occur in months that consumers began under the deductible,
with 49% of all reductions coming for the ex ante sickest half of
consumers under the deductible, despite the fact that these consumers
have quite low shadow prices. There is no evidence of learning to
respond to the true shadow price in the second year post-switch.
From the Conclusion
In this paper we studied the health care decisions and spending behavior
for a large population of employees (and their dependents) who were
forced into high-deductible insurance after years of having access to
completely free health care.
A meaningful portion of all spending reductions came from well-off
consumers who were predictably sick, implying that the true marginal
prices they faced under high-deductible care were actually quite low.
We found that almost all spending reductions during the year occurred
while consumers were still under the deductible, despite the fact that
the majority of incremental spending occurs for consumers that have
already passed the deductible. Moreover, about 30% of all spending
reductions come from consumers in months when they (i) began that month
under the deductible but (ii) were predictably sick, in the sense that
they had very low shadow prices for health care.
October 14, 2015
This study is forcing economists to rethink high-deductible health insurance
By Sarah Kliff
Economists Zarek Brot-Goldberg, Amitabh Chandra, Benjamin Handel, and
Jonathan Kolstad studied a firm that, in 2013, shifted tens of thousands
of workers into high-deductible insurance plans. This was a perfect
moment to look at how their patterns of care changed — whether they did,
in fact, use the new shopping tools their employer gave them to compare
Turns out they didn't. The new paper shows that when faced with a higher
deductible, patients did not price shop for a better deal. Instead, both
healthy and sick patients simply used way less health care.
This raises a scary possibility: Perhaps higher deductibles don't lead
to smarter shoppers but rather, in the long run, sicker patients.
Kolstad and his co-authors looked at the case of a large, unnamed
company that shifted more than 75,000 workers and their dependents from
a plan with no deductible to one with a $3,750 deductible.
Workers' health spending dropped, and did so quickly.
In one sense, then, the high-deductible plan did accomplish a key goal:
lower health spending. But when the researchers looked at why spending
dropped, they found it had nothing to do with smarter shopping. The
average price of a doctor visit wasn't dropping.
Instead, under the high-deductible plan, workers just went to the doctor
way less. The paper finds that "spending reductions are entirely due to
outright reductions in quantity." Workers did use less "potentially
wasteful care," like imaging services, but they also cut back on
"potentially valuable care," like preventive visits.
Even more striking: The sickest workers were those who were most likely
to reduce their use of care while still under the deductible — even
though this is the group that needs lots of care and is most likely to
blow through the deductible by the end of the year. Once these sick
workers actually exceeded their deductible, though, use of medical
"This is a difficult task for consumers to take on, and we now have very
detailed data to show that's the case," (Kolstad) says. "When we've
thought about the economics, we've generally thought this type of price
change wouldn't be problematic, that sicker people would just spend
their deductible and get the care they need. This research suggests
that's not the case."
For Kolstad, this makes him skeptical of "demand-side" interventions in
health care — those that rely on consumer demands for lower health
prices to ultimately lead to less medical spending.
Comment by Don McCanne
This is an important study. It shows that sick patients will not shop
prices but rather they will forgo beneficial health care services while
they are still under the deductible for their plan.
This confirms that deductibles are an inappropriate tool for reducing
health care spending, since health policies should be designed to
improve care rather than impair it. This puts the entire concept of
consumer-directed health care under question as a means of slowing
health care spending. In contrast, single payer policies control
spending while benefiting patients.
This study may seem familiar to regular readers. That is because it was
covered in our June 15, 2015 Quote of the Day. It was based on an
article in "The Conversation" by Ben Handel, one of the co-authors of
What is new is that NBER has now released the full study, and reports of
it are appearing in the media. It is a concept well worth repeating.
Excerpts of the Vox article by Sarah Kliff are included above in that
her description is quite clear, avoiding the technical language of
economists and policy wonks.
Quote of the Day, June 15, 2015:
at 2:17 PM