Bloomberg editors question out-of-pocket costs

Out of Pocket, Out of Control

By The Editors
Bloomberg View, February 16, 2015

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.



By Don McCanne, MD

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.