by John Geyman, M.D.

This country has endorsed and expanded the concept of cost sharing—between patients and the payers of health care, especially insurers and employers—as a way to contain health care costs for some 40 years. This approach has been accepted by most economists without critical evaluation. It might sound intuitively correct to assume that patients with more “skin in the game” (more out-of-pocket costs) will be more judicious in seeking their own health care, and that they will avoid unnecessary and inappropriate care, thus decreasing the costs of health care. As a basic principle of consumer-directed health care, this concept has long been championed by conservatives as a leading way to get a handle on health care costs.

But since we have widely applied this concept for the last four  decades, why is it that health care costs continue to soar well above the costs of living, and at prices that are increasingly unaffordable for much of the population? We need to be asking what are the consequences of continued reliance on this strategy, and why has it not been more seriously questioned by policy makers.

Based on the continued escalation of health care costs despite long-term use of cost sharing, we already know that cost sharing does not work as a cost-containment tool. A 2010 study of cost sharing by the Robert Wood Johnson Foundation found that it does not distinguish between essential and non-essential services, and is not well targeted at low-value services. (1) Instead, cost sharing leads many people to delay or forego necessary care, resulting in later diagnosis of illness, worse outcomes, and higher costs down the road. (2) 

Now, a just reported study of cost sharing in Japan gives us more evidence that the concept should be seriously questioned. Japan has a national policy to reduce cost sharing by 60 to 80 percent at age 70. This study found that seniors at and beyond that age did increase their outpatient visits, but for conditions “for which proper and early treatment reduces subsequent avoidable [hospital] admissions.” (3) While the study lacked the power to demonstrate long-term improved outcomes, we can reasonably assume that earlier diagnosis and treatment will produce better outcomes. That assumption is far more reasonable than one that presumes that cost sharing with delayed or no care will give better outcomes for less cost! 

In his assessment of the Japan study, Dr. Don McCanne gives us this important insight that further questions any value of cost sharing as a cost containment tool: 

“Another problem is that these cost sharing studies tend to evaluate patients’ decisions on whether or not to access care. If there were zero cost sharing, these clinical scenarios would still represent a relatively small part of our total health care utilization. The 80 percent of health care that is utilized by the 20 percent of individuals who have more serious problems is care that is quite insensitive to cost sharing, having already exceeded the deductibles. Yet the policy community tends to extrapolate the percentage of savings from foregone care in these largely outpatient situations to our entire health care spending, resulting in preposterous estimates of potential savings.” (4) 

There are, of course, other reasons for relentless increases in the cost of U.S. health care that are either denied or underestimated in the debate over health policy. Leading are these realities— physicians, not patients, order and are responsible for most services that patients receive; more than one-half of physicians are no longer self-employed but are now employed by other organizations, especially large hospital systems (and now even by some insurers). These employers are mostly for-profit where the business model reigns to maximize bottom-line revenues. 

• Despite the failure of cost sharing over these many years to contain health care inflation, it is actually increasing in this country, even as the Affordable Care Act becomes more implemented. Insurers are increasing copayment and coinsurance requirements while increasing deductibles (often as high as $5,000). (5) Employers are doing likewise in various ways, including increased co-payments and deductibles, shifting workers to low actuarial value plans through exchanges (e.g. bronze plans that cover only 60 percent of costs), and providing  a decreasing defined contribution toward their employees’ costs. (6) 

Not only does cost sharing not work to control costs, it is harmful, even dangerous for patients. The literature is replete with studies that document the deleterious effects of cost sharing that restrict access to necessary care at times when health problems can best be treated. As Professor Donald Light at the University of Medicine and Dentistry of New Jersey has noted: 

“No other advanced system considers co-pays as a serious tool for cost containment or income, and most consider them clinically perverse as well as unethical. Several have used them and then dropped them because of their administrative costs, nuisance and 

perverse effects on patients and staff.” (7)

What would happen if we gave up on cost sharing altogether and looked at other ways to control health care costs? We already know the answer if we look to many other advanced countries around the world. Most of these countries, including those in Western Europe, Scandinavia, New Zealand, and elsewhere that provide universal coverage with minimal or no cost sharing, spend little more than one-half what we pay and have better outcomes. When Canada introduced its single payer system without cost sharing in the 1970s, there was a modest increase in utilization, but most of that care was necessary and outcomes improved. (8)  When Taiwan enacted universal coverage without cost sharing with its single payer system in 1995, access and outcomes improved dramatically while administrative costs were held at just 2.3 percent. (9)

It is way past time to abandon the use of cost sharing as a way to control health care costs. That is blaming the patient when the real drivers of health care inflation are on the supply side. Despite the Affordable Care Act, the medical industrial complex rolls on where the business interests of corporate stakeholders have wide latitude to set their own prices in an era of increasing consolidation. We will not control health care costs until we shift policy approaches to address those realities. 

Dr. Arnold Relman, health policy expert and former editor of the New England Journal of Medicine, reorients our ongoing challenge this way: 

“Uncontrollable costs are the primary problem in our present system. . . . [None of the incremental reform proposals advanced by either political party] is likely to work because they do not deal with the whole system—the insurance and the delivery sides. But even more importantly, they do not address the basic problem with our health care system, that is increasing domination by commercial forces, leading to uncontrollable costs and unacceptable inequities . . .  A real solution to our crisis will not be found until the public, the medical profession, and the government reject the prevailing delusion that health care is best left to market forces” (10)

Suggested Reading: 

1. Goodell, S, Swartz, L. Cost-sharing: effects on spending and outcomes. The Synthesis Project. Policy Brief No. 20, Robert Wood Johnson Foundation, December 2010.

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

3. Shigeoka H. The effect of patient cost sharing on utilization, health and risk protection. National Bureau of Economic Research. Working Paper 19726, December 2013.

4. McCanne, D. The effect of patient cost sharing on utilization, health, and risk protection. Quote of the Day, December 19, 2013.

5. Geyman, JP. Cost sharing and its result—unaffordability of health care. Health Care Disconnects, September 13, 2013.

6. Appleby, J. Expect to pay more for your employer-sponsored health care next year. Kaiser Health News, December 20, 2013.

7. Light, DW. Cost sharing. E-mail communication with Don McCanne, M.D., President of Physicians for a National Health Program, September 16, 2002.

8. Armstrong, P, Armstrong, H, Fegan,C. Universal Health Care: What the United States Can Learn from the Canadian Experience. New York. The New Press, 1998, pp 131-2.

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

10. Relman, AR. The health of nations. New Republic, March 7, 2005.

Tag lines: cost sharing, consumer-directed health care, cost containment, access, costs and outcomes of care, health care exchanges, health care markets, Affordable Care Act, universal access, single payer financing. 

1,397 words