Cost Sharing to Buy Right, Not Shift the Cost

The administration wants more Americans in high-deductible coverage, and it is rewriting the rules to promote it. In May, the Centers for Medicare and Medicaid Services finalized a rule that, starting in 2027, widens access to the ACA’s catastrophic plans—bare-bones coverage with deductibles at the law’s $10,600 ceiling—opening them to more buyers for terms up to a decade. A new federal law lets bronze and catastrophic plans pair with a health savings account.  The timing compounds the push. With the ACA’s enhanced premium tax credits expired, premiums have spiked and millions are buying down. Bronze sign-ups—the highest-deductible tier—leapt from 30 to 40 percent of plan selections, from 7.3 to 9.2 million people, while silver hit a record low. The average Marketplace deductible jumped 37 percent to $3,786, the steepest one-year rise on record. Yet nearly a third of adults have under $500 in savings, and one in eight could not cover a $400 emergency.  A Cost Shift, Not a Cost Cure   This does cut spending—but consider how. Not by making care cheaper or wringing out waste, but by leading people to use less of it, and the care they skip is often the care they need. Holding down the nation’s health bill by pushing the sick to go without is not cost containment. It is cost shifting—moving the bill from the pool onto the individual—sold in the language of choice and skin in the game.  And the risk is inverted. The low premium that makes these plans attractive draws in the very people who can least afford the deductible behind it, betting they stay well. For them the bargain is penny-wise and pound foolish: a little saved each month against a deductible that turns ruinous the moment illness comes. Some coverage beats none—but a deductible bigger than a family’s savings insures little it can use. Insurance exists to absorb that risk; these plans hand it back to the people least able to bear it.  Cost-Sharing Has a Right Dose   Yet cost-sharing is not the villain. At the right level it is a necessity, a proven brake on spending. The RAND Health Insurance Experiment, the only large, randomized trial of cost-sharing, found that people who paid more out of pocket used 20 to 30 percent less care, with no measurable harm to the average person’s health. Some skin in the game creates price-sensitivity that first-dollar coverage erases. But RAND taught a second lesson too: the cutbacks were blunt, hitting needed and unneeded care alike, and the poor and chronically ill fared worse.  Which means we must get cost-sharing right. Set where it sharpens purchasing, it builds the cost-consciousness the system needs; turned into a blunt instrument for cost-shifting, it penalizes the people who need care most instead of encouraging it.  Cost-sharing also works where the consumer can act—on care that is shoppable: schedulable, with competing providers and prices that vary. That zone is narrow. The Health Care Cost Institute found that only about 7 percent of health spending is both shoppable and paid out of pocket—the slice a patient can steer. Where shopping is possible the effect is real: lower-limb MRI prices vary more than twelvefold, and a shopper could nearly halve the scan’s out-of-pocket cost.  The Deductible Lands on the Sick   The blunt high deductible does the opposite. Health spending is extraordinarily concentrated: the top 5 percent of spenders account for half of it, three-quarters of them with two or more chronic conditions. The people who hit a deductible are, overwhelmingly, the sick—and few shop their way out of a heart attack.  When one large firm moved its workers into a high-deductible plan, spending fell 12 to 14 percent entirely by cutting care, not shopping, the sickest half absorbing half the reduction. And though the system is wasteful— about 25 percent of all spending—most of that waste is administrative and pricing failure, beyond any high deductible’s reach.  Calibrate, Don’t Shift   So, the question is balance, and it is being answered badly—though the tools to get it right already exist. Reference pricing caps what a plan pays for a shoppable procedure, leaving the patient the difference: when CalPERS capped joint-replacement payments, hospitals cut prices by a third, the savings from lower prices, not patients going without, the sick exempted. Value-based design runs the other way—little or no cost-sharing on high-value care like insulin and heart drugs—so the chronically ill stay out of the hospital. One presses prices down; the other keeps the sick adherent. Both flatten the curve, and neither makes the patient ration.  The current direction does neither. A regulatory push toward bronze and catastrophic coverage loads more risk onto the people least able to carry it under the guise of choice. That is not a plan to buy right. It is a plan to shift costs to the sick.  The post Cost Sharing to Buy Right, Not Shift the Cost appeared first on American Enterprise Institute - AEI .