High deductible plans discourage unnecessary care--and also necessary care [View all]

[eridani]

https://theconversation.com/health-care-cost-sharing-prompts-consumers-to-make-big-cuts-in-medical-spending-41657

“What Does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics” by Zarek Brot-Goldberg, Amitabh Chandra, Benjamin Handel and Jonathan Kolstad (43 slides):

http://eml.berkeley.edu/~bhandel/wp/BCHK.pdf

Giving consumers direct incentives to think about their health care spending is a cornerstone of health reform in the US and plays a large role in several national health systems around the world, such as in France.

An important prerequisite for these reforms to be successful is that consumers, who may or may not be making medical decisions in conjunction with physicians, understand the costs and benefits of different health care services. Our evidence suggests that consumers don’t seem to be responding to increased cost-sharing with nuanced expertise and instead reduce consumption across the range of medical services, some valuable and some likely wasteful.

Additionally, they reduce care heavily when sick and under the deductible, even when their true marginal price of care is very low.

Thus, while increased consumer cost-sharing can be an effective instrument for reducing health care spending, it may be a blunt instrument for encouraging higher value medical spending, especially relative to supply-side interventions that target physician incentives or interventions that reduce the use of high-cost low-value medical technologies.

Comment by Don McCanne of PNHP: A cursory glance at this article suggests that it is simply one ore study that confirms that high deductible plans decrease health care spending, and since you already know that you might be tempted to pass on reading today’s message. But don’t skip this one if you wish to better understand just what impact high deductibles really do have.

What is unique about this study is that it evaluated the patterns of the change in health care spending when a large firm switched about 85 percent of its employees from a PPO plan that provided first dollar coverage (no deductibles, no coinsurance, and $0 out-of-pocket maximum) to a HDHP (high deductible health plan with $3,750 deductible, 10% coinsurance, and $6,250 out-of-pocket maximum). The health care providers were the same both before and after the change was made. This is about as pure of a study as you could devise on this topic - the same employees, the same health care providers, but with a change to a high deductible with coinsurance and a new patient responsibility for up to $6,250 in cost-sharing.

As expected, spending abruptly declined - by about 19%. So was this a result of better price shopping, as the advocates of these consumer-directed HDHPs tout? No. Medical prices did not go down after the switch was made. These health care consumers did not shop prices.

What went down was the quantity of health care provided. In fact, the sickest employees reduced their use of health care services even more - by about 25%. The reductions in utilization were across the board - inpatient services, outpatient services, emergency room services, mental health care, drug purchases, imaging, and preventive health services. Most of these are beneficial services.

Another interesting finding is that those individuals with significant disorders who knew that they would reach their maximum out-of-pocket spending nevertheless reduced their utilization of health care services while they were still under the deductible. They did not need to reduce their use of these services since after the out-of-pocket maximum is reached, their marginal cost of additional health care is essentially zero. Their net costs are the same regardless of their utilization. It is likely that these sick individuals were needlessly forgoing beneficial health care services.

The author states, “consumers appeared to reduce consumption across a range of medical services, from low to high value.” Clearly policies that reduce the consumption of high value care are undesirable, and, for this reason alone, deductibles and coinsurance should be eliminated. But what about low value care? What is low value care? Is that the MRI that, in retrospect, turned out to be normal? Wasn’t there some benefit in excluding potential pathology? Attempting to ferret out low value care can be detrimental if it consequentially results in the blunt elimination of high value care as well.

Besides, how much spending reduction would we really see with the reduction in beneficial health care services that results from deductibles? Remember that the 20 percent of individuals with greater health care needs consume 80 percent of our health care services. Most of this spending is well above the maximum out-of-pocket costs and thus cost-sharing has very little impact on this spending. The deductibles might influence utilization for the other 80 percent of us, but that would reduce spending by only a fraction of the 20 percent of health care that we use. Anyway, is the amount of health care used by us low-utilizers really an egregiously excessive amount of care? We usually have a legitimate reason for going to the doctor.

In this article, Ben Handel states, “while increased consumer cost-sharing can be an effective instrument for reducing health care spending, it may be a blunt instrument for encouraging higher value medical spending, especially relative to supply-side interventions that target physician incentives or interventions that reduce the use of high-cost low-value medical technologies.”

Instead of using detrimental demand-side patient cost-sharing instruments to reduce spending, just think of what could be accomplished on the supply-side using a well designed single-payer monopsony for financing health care: global budgeting of institutions such as hospitals, dramatic reduction of administrative waste, negotiation of rates for services and products, bulk purchasing of pharmaceuticals, avoiding excess capacity through planning and separate budgeting of capital improvements, and establishing a global budget for the entire health care delivery system.

There is no need to assess financial penalties (deductibles and coinsurance) merely for accessing beneficial health care services. With a single payer system, patients simply obtain the health care that they need, when they need it. That's the way it should be.