Baicker and Chandra on cost sharing

The Veiled Economics of Employee Cost Sharing

By Katherine Baicker, PhD; Amitabh Chandra, PhD
JAMA Internal Medicine, July 2015

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
Health Affairs, July 2015

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 and 2014.

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.



By Don McCanne, MD

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.