The Changing Consensus on Healthcare Cost-Sharing

Economists question whether price transparency can reduce healthcare spending. 

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A few years ago, it was accepted wisdom among economists that shifting more of the burden of medical expenses to patients would help reduce the cost of healthcare in America, the highest in the world. Cost-sharing was supposed to inject rationality into healthcare pricing: patients would have an incentive to shop for the best deals, which would apply pressure on hospitals to lower their prices. The theory has helped inform the design of many employer health plans in the last decade, including the controversial plan that Harvard introduced for its faculty and nonunion staff members two years ago, which implemented deductibles and coinsurance.

But the research on cost-sharing and comparison shopping suggests that healthcare consumers aren’t responding as the theory suggested. A new paper by Harvard Medical School (HMS) researchers found that giving patients access to a price-comparison tool didn’t lower their spending, contributing to a growing literature suggesting that patients aren’t responding to incentives to comparison shop. Schaeffer professor of health care policy Michael Chernew, who coauthored the paper, also chairs the University Benefits Committee, which had recommended the introduction of cost-sharing in Harvard’s plan in 2014. 

The study looked at 150,000 employees at two large U.S. companies (one on the West Coast and one with offices across the country) that provided an online price-comparison tool through their healthcare plans. Patients could use the tool to compare different providers’ prices for routine services, like MRIs and blood tests. The tool showed patients what their approximate out-of-pocket costs for a procedure would be (based on their deductibles and coinsurance), rather than just the full cost of the service, said Sunita Desai, a fellow in health care policy at HMS and an author of the study. Compared to other comparison tools, she said, this one was easier to use and understand. 

“One of the major issues in our healthcare system is what appears to be inappropriate variation in price,” said associate professor of healthcare policy and medicine Ateev Mehrotra, the paper’s lead author. “There have been a lot of efforts in the United States to push the idea of empowering patients through consumerism.” But when the team compared the test group to 296,000 employees at companies that didn’t offer a comparison tool, they found the former no more likely to spend less on healthcare. Only 10 percent of employees used the tool at all. The group offered the tool showed a slightly higher increase in healthcare spending after one year, when compared to the control, though more research is needed to understand what that means. (One hypothesis, Desai said, is that patients associate higher costs with higher quality.) 

Last year, a widely-publicized study of 75,000 employees who were switched from a plan with no deductible to a high-deductible health plan (HDHP) with a comparison tool found that they did reduce healthcare spending—but not by comparison shopping. They simply used less healthcare, even when they needed it. “If you make people bear more of the cost of their healthcare, they use less healthcare. That has been a very consistent finding–with a high-deductible health plan, spending will by reduced by 10 to 15 percent in the first year,” Mehrotra said. But what the research hasn’t shown, he explained, is that cost-sharing makes patients more judicious about how to choose healthcare: “They’re not shopping around for care.” 

The number of employers offering HDHPs has grown incredibly quickly in the last few years. Deductibles in employer-provided health plans have increased by 67 percent since 2010, much faster than the increase in premiums, according to the Kaiser Family Foundation. Harvard introduced an HDHP option for faculty and staff in 2014, with a deductible of $1,500 and lower premiums than its other plans. Public programs like Medicare also have moved toward more cost-sharing.

It isn’t clear why cost-sharing and the ability to comparison shop haven’t produced better results. Most searches on the tool examined in the HMS study were for expensive procedures of more than $1,250; that amount exceeds many of the employees’ deductibles, so they might have had no incentive to choose lower-cost providers. Patients may also be skeptical of lower-cost care, (even though research has shown little relationship between cost and quality), or they may care about factors other than cost—valuing an existing relationship with a doctor or hospital, for example. Most healthcare, Desai stressed, like emergency care, isn’t “shoppable” at all. And the idea of shopping around for healthcare hasn’t become normalized in American culture, though with time it might. 

For Americans without access to price-comparison tools, getting any cost information from hospitals remains virtually impossible, which militates against comparison shopping. Health-reform advocates might see in the study’s findings support for a national single-payer system that controls prices without relying on patients to figure out how to find the best value. The study’s recommendations are more conservative: price transparency alone may not promote effective comparison shopping, the researchers stated, but more-direct incentives might. “Price transparency is one piece of the puzzle,” Desai said, “but it’s not going to be the cure-all to healthcare costs that the rhetoric has suggested.” Insurance companies might adopt “reference-based” pricing, for example, that sets a maximum that they are willing to pay for a particular procedure, and ask patients to cover the rest. “If my goal as an employer is to have people switch to lower-cost providers, I would use a more direct way of signalling to my employees where to go,” Mehrotra said. “I would say, ‘Here’s a set of doctors where you’ll pay a $0 copayment. Here’s another set of doctors where you’ll pay a $30 copayment.’ It’s a lot more straightforward.” 

Unlike Harvard’s non-unionized staff, the University’s largest union, the Union of Clerical and Technical Workers, managed to avoid healthcare deductibles and coinsurance in its new contract this year. Cost-sharing is again expected to be a major sticking point in Harvard’s negotiations with the dining-hall workers’ union this summer. Dining-hall staff have already expressed concerns about the potential introduction of deductibles in their plans—and the evolving academic consensus on cost-sharing is sure to enter into the negotiations.

Read more articles by: Marina N. Bolotnikova

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