The market demand in health policy publishing circles appears to remain inelastic for articles decrying the excesses and burdens of rising cost sharing, particularly of the insurance deductible variety. The producers of the same old song have got a fever, and the only prescription is “more cowbell.”

Nevertheless, let’s review, from a different perspective, a recent contribution of my AEI colleague Ben Ippolito in Health Affairs Forefront. His initial premise (with coauthor Boris Vabson) is that cost sharing in employer-sponsored insurance (ESI) plans (at least) is rising both in absolute and percentage terms, primarily through deductibles, but that a substantial share of that results in unpaid “medical debt.” The combination of those two trends is supposed to be harmful to the more efficient and effective operation of health care markets (particularly for providers!). Their modest policy recommendation, apart from fretful reflection over the tradeoffs in recent lessening of the consequences of unpaid medical debt by insured workers (if not others), involves switching more cost sharing from coinsurance to copayments.

The usual problem with such analyses by skillful health policy analysts is less in the sequential reasoning and data massaging than in the underlying assumptions and unexamined alternative explanations.

For example, just how much have annual ESI single-coverage deductibles increased? Ippolito and Vabson calculated that they grew by roughly 2.5 times in real terms from 2006 to 2022. Figures 7.9 and 7.10 in the 2022 Kaiser Employee Benefits Survey do provide the nominal parameters, rising from $303 in 2006 to $802 in 2012 to $1562 in 2022. Ippolito and Vabson don’t indicate which deflator they used to adjust the Kaiser numbers, nor did they comment on why these deductibles appeared to increase much more rapidly during the 2006–2012 period, and less so over the last decade.

It might help to fit this employee deductible growth trend within the broader pattern of overall national health spending growth. Using historical National Health Expenditure (NHE) data compiled annually by actuaries at the Centers for Medicare and Medicaid Services, the latter increased from $2,026.6 trillion in 2005 to $4255.1 trillion in 2021 (a similar 16-year interval, because NHE figures for 2022 are not yet final). That is nominal growth roughly 2.1 times as large from start to finish, but a smaller rate of increase in real terms, depending on one’s choice of deflator.

A somewhat better set of markers would involve the subcategory of Health Care Expenditures (HCE) within this same NHE time series. Nominal HCE grew from $1.901 trillion in 2005 to $4.048.1 trillion in 2021. Even more refined, per capita nominal HCE grew from $6446 in 2005 to $12,285 in 2021.

The first point is that rates of growth over time in one variable need to be compared to growth rates in larger categories of health spending, but those benchmark comparisons still can vary depending on which ones you use and how you index them for inflation.

The second, more telling point is to look elsewhere—at measured trends in out-of-pocket spending paid (as opposed to what was charged)—to determine better the magnitude and incidence of higher cost sharing over time. That time trend looks different—with a lower growth rate rising from $264.5 billion in 2005 to $433 billion in 2021 (without adjustment into constant dollars). In other words, it’s clear that cost sharing charges are rising more rapidly than cost sharing payments, which roughly confirms at least one of the points made by Ippolito and Vabson.

Within a broader context of the overall national health care production food chain, a different longstanding pattern points elsewhere. Out-of-pocket (OOP) spending continues to decline as an overall percent of total national health spending, as I have detailed elsewhere. Even the COVID pandemic’s budgetary bungee jump from 2019 to 2021 resulted in the OOP share of NHE dropping from 10.72 percent in 2019 to 10.18 percent in 2021. Due to data lags, it is harder to parse the most recent relative OOP share trends within particular sectors of the health care economy, but my last review of the evidence in 2021 found that the ESI sector’s OOP/NHE percentage had risen only a slight amount from 2014 to 2017, while remaining 1.6 percent below its 2010 share of 17.1 percent. Declines in the OOP share of spending within Medicaid, Medicare, and the individual insurance market since 2010, plus shifts in the composition of total spending away from the uninsured sector and toward Medicaid and Medicare in particular, further tilted relative spending share trends away from OOP.

In part II, I will continue to examine why we get distracted by more-selective cost sharing factoids and forget to ask more important questions to provide better explanations.

The post Asking Better Questions to Get Better Answers About Cost Sharing, Part I appeared first on American Enterprise Institute – AEI.