If there is a growing gap between deductible-based cost sharing charges imposed on insured individuals and what they are willing, or able, to pay (as examined in parts I and II), why is this happening and what, if anything, should public policy do about it?
Prescribing new treatment remedies for inadequately diagnosed problems may fit within the looser standard of care that keeps Washington policy circles churning and academic proposals circulating. However, it remains premature, if not negligent, to eschew re-examining what may be keeping the appearance, if not the full reality, of oft-criticized insurance business practices so persistently prevalent.
Why don’t we actually get as much cost reduction as we expect to see?
Ippolito and Vabson suggest consideration of improved insurance benefit design that might wound several health policy spending birds more surgically with a single cost sharing stone. They posit that current cost sharing practices may not only produce less payment from consumers than envisioned but also fail to target low-value care. Next, they turn to a trendier recommendation in certain policy circles—replacing deductible-based cost sharing with greater use of copayments to produce clearer cost-reducing incentives and more spending-reduction bang for the risk-exposure buck.
Unfortunately, a closer reading of the research they cite fails to prove these points as effectively as asserted. Karen Stockley’s 2016 paper, “Evaluating Rationality in Responses to Health Insurance Cost-Sharing,” is an ambitious and cleverly designed study that still falls short in demonstrating the broader effectiveness and feasibility of much greater reliance on copayment incentives in place of deductible-based cost sharing in employer-insurance plans.
That study concludes that copayments drive significantly larger reductions in spending per dollar in out-of-pocket (OOP) costs relative to actuarially equivalent deductibles, while potentially reducing the overall risk of exposure to much higher OOP costs.
However, the usual medley of heroic assumptions, incomplete data sets, omitted variables, and preexisting policy biases limit the persuasiveness of this artificially natural experiment. For example, any evidence of coinsurance-style cost sharing is ignored. The Massachusetts-specific employer plans sample seems unduly skewed toward plans predominantly reliant on copayment incentives. Its overemphasis on effects on spending for office visits and prescription drugs does not consider whether those items may be far more sensitive to point-of-service copayment incentives than other health care expenses. The Stockley paper fails to consider differences in which types of employers were more prone to switch their benefit plan designs during the study period.
Stockley’s search for signs of forward-looking behavior by consumers is limited only to the maximum duration (the first month of a plan year) rather than later months when additional partial knowledge would be more decisive in making end-of-year deductible projections. The study only pauses briefly to note that copayments reduce adherence to high-value medications for chronic conditions even more than general deductibles do (if prescription drug benefits are carved out). Also missing is much reflection on the finding that less than half of patients achieved full adherence to recommended medications even under post-Affordable Care Act zero-cost-sharing mandates for preventive services.
The study bypasses the inability of its data sets to measure the potential cost of health care services and their OOP components considered but never consumed. It seems to attribute failures in receiving recommended care exclusively to consumer decisions and never examines how more comprehensive insurance might also distort cost-benefit calculations for more discretionary health care services. Or even how dollars saved on health care might be spent to maximize consumer welfare in other ways. Of course, there’s not much need to account for the potential incentives of funds available in health savings accounts to close cost sharing gaps, because the study in question involves only Massachusetts employers.
In other words, consumer power in health care seems primarily to be strongest only when it produces myopic, counterproductive decisions—at least when compared to the fully informed, rational ideal also considered more of a steady state for public policy makers and providers, or at least their would-be academic advisers!
There often is a more receptive editorial market for studies that show once again that Harvard economists are far smarter than health care consumers and their insurance sponsors (and perhaps even insurers and health care providers), at least when armed with richer data after the fact. However, a more productive health policy market should insist on better. Some suggestions on how to match the ideal with the real are ahead in my concluding part IV.
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