COST SHARING AND ITS RESULT — UNAFFORDABILITY OF HEALTH CARE


John Geyman, M.D.

Cost sharing (the sharing of health care costs among insurers, employers, and individual patients) has been a dominant strategy to contain health care costs for several decades. The premise is that the more patients have “skin in the game”, the more prudent they will be in their health care choices and the more health care costs can be contained. A seemingly attractive, intuitively correct concept—but a failed strategy based on many years’ experience in this country. 

Cost sharing has been adopted by both political parties, and remains an essential part of the Affordable Care Act (ACA) in various forms. The concept is so entrenched as to become a meme, without needed critical analysis.


Cost sharing has failed as a cost containment strategy, as demonstrated by continued inflation of health care costs far above the CPI and the cost of living. Up to one-third of health care services are inappropriate or unnecessary.  Most of these are driven by physicians ordering these services under a volume-oriented business model, so that the supply side is more responsible for health care inflation than patients themselves.  Some of this can be explained by defensive medicine, but that factor is way down the list of important factors. A 2010 study found that only 2.4 percent of total healthcare spending is accounted for by the medical liability system. 


While failing to improve access, quality and outcomes of care, cost sharing has made health care increasingly unaffordable. A growing number of patients delay or forego necessary care altogether. As a result, they receive later diagnosis of illness, higher costs, decreased quality, and worse outcomes of care. These examples suggest the depth of this crisis:


  According to the 2013 Milliman Medical Index (MMI), the average healthcare costs for a typical family of four with an employer-sponsored preferred provider organization (PPO) now exceed $22,000;  that is clearly an unsustainable financial hardship given that the median U. S. family income is about $50,000 per year. 


  Family deductibles as high as $5,000 are increasingly being offered, even by large employers; an increasing number of 

“insured” patients with high-deductible plans are unable to pay their hospital bills. 


  Just days ago, the Obama Administration announced a delay until 2015 of a limit on out-of-pocket costs, now $6,350 for an individual and $12,700 for a family; insurers are now free to set higher limits, or no limit at all on some costs in 2014. 


So if cost sharing doesn’t work, could its opposite—first-dollar coverage—work to contain costs?  The remarkable answer is Yes, as demonstrated over the years by many advanced countries that have adopted one or another form of publicly-financed care together with price control and accountability mechanisms. These countries range from Western Europe, Scandinavia, Canada, Taiwan, New Zealand and Australia. Their systems have shown that patients do not abuse health care as much as many would like to think. When Canada adopted its single-payer system in the 1970s, coupled with first dollar coverage in a private delivery system, there was hardly a rush to care. Most of the small increase in services had been previously delayed or foregone. Taiwan established its single-payer system without cost sharing in 1995. Its administrative costs remained at 2.3 percent, access and outcomes of care improved as cost savings offset the incremental costs of covering all of the previously uninsured. 


As Gerald Friedman’s recent economic analysis has made clear, there is already plenty of money in the system to fund a single-payer national health insurance program (NHI). Universal coverage for all necessary care can be provided, without cost sharing, by eliminating waste and profiteering  of the private insurance industry and others on the supply side, reduction of bureaucracy, global budgeting and reimbursement reforms, more effective price controls, and transitioning toward a service-based ethic from the present business model of health care. 

Beholden as they are to the moneyed special interests of corporate stakeholders in the medical industrial complex, politicians on both sides of the aisle have agreed to date to keep single-payer NHI off the table. This stance only tells us that they see corporate stakeholder interests as the patient—not real patients—ordinary Americans and their families. How long will we put up with this?


Suggested Reading: 

1. Wenner, JB, Fusher, ES, Skinner, JS. Geography and the debate over health care reform. Health Affairs Web Exclusive W-103, February 13, 2002.

2. Mello, MM, Chandra, A, Gawande, A, Studdert, DM. National costs of the medical liability system. Health Affairs 29 (9): 1569-77, 2010.

3. Geyman, JP. Moral hazard and consumer-directed health care: A fundamentally flawed concept. Int J Health Services 37 (2): 333-51, 2007.

4. Press release. Healthcare costs for American families top $22,000 in 2013. Milliman Medical Index. May 22, 2013. Milliman @info.milliman.com

5. Hancock, J. More high-deductible plan members can’t pay hospital. Capsules. The KHN Blog, August 12, 2013.

6.  Pear, R. A limit on consumer costs is delayed in health care law. New York Times, August 12, 2013.

7, Armstrong, P, Armstrong, H, Fegan, C. Universal Health Care: What the United States Can Learn from the Canadian Experience. New York. The New Press, pp131-2, 1998.

8. Lu, JR, Hsiao, WC. Does universal health insurance make health care unaffordable? Lessons from Taiwan. Health Affairs 22 (3), 77-88, 2003.

9. Friedman, G. Funding H.R. 676: The Expanded and Improved Medicare for All Act. How we can afford a national single-payer health plan. Press release by Physicians for a National Health Program, July 31, 2013, info@pnhp.org

Tag lines: cost sharing; moral hazard; cost containment; Milliman Medical Index; Affordable Care Act; out-of-pocket costs; single-payer; national health insurance

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