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Cost sharing may not cut health costs

Cost sharing ignores chief cost drivers and shifts the cost burden to patients who cannot afford it

Increasing healthcare cost sharing does little to reduce overall healthcare costs or make it more efficient, according to a report released Wednesday by the Economic Policy Institute. But shifting the burden to patients puts an excessive load on those who may need care the most and can least afford it.

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Cost sharing, such as higher out-of-pocket expenses, seeks to bring down overall health expenditures by making individuals more careful consumers of healthcare. However, healthcare consumers who are sick or in need of emergency services are rarely in a position to shop around or second-guess the advice of their doctors, said Elise Gould, EPI’s director of health policy and author of the report, “Increased Health Care Cost Sharing Works as Intended: It burdens patients who need care the most,” in a news release.

The price of a procedure is rarely an effective means by which to judge its value, so increasing cost sharing does little to make people more discerning healthcare consumers, she noted.

“Unless we increase cost sharing for truly catastrophic medical needs – which no one is suggesting – these policies will miss the primary cost drivers in our healthcare system,” Gould said in the news release. “Roughly 80 percent of health care costs are driven by just 19 percent of the population – encouraging healthy people to cut back on health care simply misses the majority of costs.”

Because healthcare cost growth is so concentrated, with 5 percent of the population accounting for half of healthcare dollars, it is critical to focus instead on these very sick and chronically ill patients. Increasing cost sharing ignores this point by forcing individuals into less-comprehensive insurance, she said in the release.

Ultimately, any cost containment achieved by making healthcare more expensive to consumers is driven by reduced medical care, not reduced prices. “They may even cut back on medical spending that is cost effective in the long run,” Gould said in the report.

The report explores two cost-sharing policies: the Affordable Care Act’s excise tax on high-priced employer-sponsored health insurance and the proposal to restructure Medicare into a voucher program. For those who need extensive medical care, both of these policies may result in financial distress or sacrificing medical treatment.

“These policies may ease the federal budget, but research shows that they will do little to contain overall health spending,” the report said. “Furthermore, they put all the burden of cost containment on consumers without giving them the tools to make more fully informed medical decisions.”

The excise tax is poorly targeted, since premiums are driven by a variety of influences, such as size of the group, ages of the members and risk, unrelated to the generosity of plans. “Expensive plans are not necessarily more generous plans,” the report said. 

And turning Medicare into a voucher program could increase the financial and health risks to elderly, sick and disabled individuals, the report argues. Retirees would need to direct a greater share of their fixed income toward healthcare, as the voucher, which would be allowed only limited rate increases, lost value relative to other health plans for purchase.

Policymakers who are determined to increase cost sharing should make sure that methods they establish are not “… destructive to health or economic security,” Gould said in the report.

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