The Robert Wood Johnson Foundation (RWJF) released a report and policy brief finding that increased cost-sharing may not effectively reduce the rate of health care spending growth.  Examining the impact of increased cost-sharing on individuals’ health spending and outcomes, the authors suggest that reductions in service use only modestly impacts overall health spending because the majority of insured individuals are healthy.  In addition, RWJF determined that individuals do not accurately discriminate between essential and nonessential health services when responding to increased cost-sharing.  Although affected patients reduced emergency room utilization, they also reduced their use of preventive care and essential drugs.  Finally, the authors found that increased cost-sharing had an adverse effect on vulnerable populations, including the elderly, the chronically ill, and low-income individuals.

From the report:

With the passage of the Patient Protection and Affordable Care Act (PPACA), efforts at health care reform are focused on two major issues. One is how to implement the expansion of insurance coverage to most of the country’s population. The other is how to slow the growth in health care spending. Intertwined in both issues is the question of what form and degree of cost-sharing should be expected of consumers. How medical care costs are shared between patients and insurers in minimally creditable policies could affect both the level and rate of growth of national health care spending.

Health insurance has an inherent tension between the benefit of reducing people’s exposure to financial risk and the drawback of increasing people’s use of low-value or unnecessary medical care that can drive up health care spending. Exposure to financial risk is greatly reduced as the fraction of health care costs covered by insurance increases. But as insurance covers more costs, people tend to use more care, some of which is unnecessary or low-benefit relative to cost. In particular, people would not use much of this low-value care if they had to pay the full cost. Health insurance design is, as Aaron (1) notes, a “potentially powerful tool for controlling the level and composition, if not the rate of growth, of people’s demand for [health] care.” (p. 22). Thus, deductibles, coinsurance and co-payments (different forms of consumer cost-sharing) affect people’s demand for health care. Cost-sharing also affects demand for specific types of health care differently if the cost-sharing is not applied uniformly and/or benefits from different types of health care vary across people based on their characteristics and risk preferences (1, 135). Policymakers are acutely aware of this tension in health insurance. Concerns about how much faster health care spending has been growing compared with GDP have been voiced by many public and private sector policy-makers. These concerns have stimulated debates about the merits of increasing cost-sharing to discourage demand for low-value or unnecessary health care.

Full Report:  Cost-sharing: Effects on spending and outcomes (PDF |369 KB)

Policy Brief: Cost-sharing: Effects on spending and outcomes (PDF | 253 KB)

Robert Wood Johnson Foundation. (2010). Cost-sharing: effects on spending and outcomes. Swartz, K.