Is that surgery really worth it? Do I really value that cancer screening? Is that extra imaging service necessary?
These are the kinds of questions consumers ask themselves when their insurance plans require higher cost sharing for medical services. This is a new reality in the U.S. health care system, as large employers offering coverage have moved aggressively toward less generous, high-deductible insurance offerings.
This shift was accelerated by the “Cadillac Tax” provision contained in the Affordable Care Act (ACA), which, starting in 2018, places an excise tax on employers offering insurance plans that cover very high levels of medical spending. Further, many of the consumers enrolling in the public state exchanges created under the ACA have enrolled in lower-coverage financial plans that cover an average of 60 percent (bronze) or 70 percent (silver) of medical expenditures, similar to typical high-deductible coverage.
Though these policies are in part motivated by the government’s need to reduce its share of total health care spending, they are also driven by the expectation that they will lead consumers to use higher-value, lower-cost medical services.
In my recent research with Zarek Brot-Goldberg, Amitabh Chandra, and Jon Kolstad, we dug into the mechanisms for how and why consumers reduce medical spending when faced with higher cost sharing.
To do this, we studied the medical claims and medical spending of more than 150,000 employees and dependents from one large firm that moved everyone from an insurance plan that provided completely free health care to a high-deductible plan covering 78 percent of medical spending on average.
During the switch, the in-network providers that consumers could access and the services covered remained the same. As a result, this switch presented an excellent opportunity to assess in detail how consumers respond to markedly increased cost sharing.
Primarily, we wanted to know whether employees would reduce their medical spending as a result of the change and, if so, by how much. Further, we hoped to learn where specifically they'd cut back. Would they spend less on nonessential services or reduce spending across the board? Would they try to find cheaper sources of health care? Do some employees cut more than others? Do employees correctly perceive the true marginal price of care in a complex insurance contract?
Health Care Spending Plunges
We first established that increased cost sharing does reduce medical spending at the firm. Age- and inflation-adjusted medical spending dropped by 19 percent—from a base of approximately US$750 million in spending—when employees switched to high-deductible coverage.
