Is Healthcare Cost Sharing the Answer?

Republicans talk up the appeal of consumer-directed healthcare spending. This is often a health savings account, or HSA, usually combined with a high-deductible insurance policy. Consumers can save and invest, tax-free, in their HSA and then use that money to pay out-of-pocket costs.

This approach assumes that consumers overuse health-care services and that, when faced with spending their own money from the HSA, they will be smart about spending on high-value services from the lowest-cost provider.

While there is evidence of both overuse of some services and underuse of others, policy research on these types of cost-sharing arrangements strongly suggests that consumers are not good at distinguishing high-value services from low-value. When more of the cost-sharing is shifted onto consumers, they tend to reduce healthcare spending indiscriminately.

On one hand, high cost-sharing leads to a slowdown or decline in healthcare spending (consumption). On the other, patients might forgo necessary and high-value services that lead to healthier outcomes. For example:

• The Rand Health Insurance Experiment from the early 1970s is the landmark study that demonstrated how higher cost-sharing can reduce healthcare spending. However, it also showed that cost-sharing reduced effective medical care, including preventive services, especially among low-income children and adults.
• Multiple studies have demonstrated the same dynamic. For example, one study found that cost-sharing lowered inappropriate hospital admissions by 27% but also decreased appropriate hospital admissions by 22%.¹
• Studies of consumer-directed plans among patients with employer-sponsored insurance suggest considerable confusion about plan features and self-selection. In other words, employees choosing consumer-directed plans skew more educated, high income, and healthier. These are also the folks who, according to the Kaiser Family Foundation in 2016, gain greater benefit from the favorable tax treatment of HSAs.
• Finally, putting consumers in charge of shopping for lower-cost providers has resulted in a reduction in healthcare spending. We have not seen a shift toward lower-cost providers among employees who had extended access to price-shopping tools for physician services and lab tests.

High-quality data on what constitutes high-value versus low-value healthcare services might help consumers discriminate where healthcare dollars are most likely to lead to better health. However, we’re not optimistic that even the best data will overcome the significant information asymmetry between doctors and patients. Most patients still rely on their doctors for advice and guidance on what healthcare services are necessary, needed urgently, and valuable.

We are heartened to see that practitioners and providers are beginning to advocate for lowering financial barriers to high-value care. A recent editorial in the Journal of the American Medical Association pushed back on payer enthusiasm for shifting more cost-sharing onto the shoulders of patients. The Affordable Care Act attempted to address this by making preventive care free of out-of-pocket costs. However, none of the Republican replacement ideas attempted to hone consumer-directed health into a more targeted lever.

Aside from decreasing use, HSAs also primarily benefit high-income households while leaving lower-income families on the financial ropes. In one wide-ranging policy study of HSA participants in employer-sponsored plans from 2004–12, the authors found that the high-income employees ($100,000-plus per year) were four times more likely to max out their contributions than employees from the lowest-income quintile.²

Our conclusion: We think consumer-directed tools will likely encourage lower healthcare use across the board and could lead to less-desirable health outcomes.

1 Siu A., Sonnenberg F., Manning W., Goldberg G., Bloomfield E., Newhouse J., Brook R. 1986. "Inappropriate Use of Hospitals in a Randomized Trial of Health Insurance Plans." New England Journal of Medicine, Nov. 13, 315(20), pp. 1259–66. 2 Helmchen, L., et al. 2015. "Health Savings Accounts: Growth Concentrated Among High-Income Households and Large Employers." Health Affairs, Vol. 34, No. 9.