What Does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics

Abstract

Measuring consumer responsiveness to medical care prices is a central issue in health economics and a key ingredient in the optimal design and regulation of health insurance markets. We study consumer responsiveness to medical care prices, leveraging a natural experiment that occurred at a large self-insured firm which required all of its employees to switch from an insurance plan that provided free health care to a non-linear, high deductible plan. The switch caused a spending reduction between 11.79%-13.80% of total firm-wide health spending. We decompose this spending reduction into the components of (i) consumer price shopping (ii) quantity reductions and (iii) quantity substitutions, finding that spending reductions are entirely due to outright reductions in quantity. We find no evidence of consumers learning to price shop after two years in high-deductible coverage. Consumers reduce quantities across the spectrum of health care services, including potentially valuable care (e.g. preventive services) and potentially wasteful care (e.g. imaging services). We then leverage the unique data environment to study how consumers respond to the complex structure of the high-deductible contract. We find that consumers respond heavily to spot prices at the time of care, and reduce their spending by 42% when under the deductible, conditional on their true expected end-of-year shadow price and their prior year end-of-year marginal price. In the first-year post plan change, 90% of all spending reductions occur in months that consumers began under the deductible, with 49% of all reductions coming for the ex ante sickest half of consumers under the deductible, despite the fact that these consumers have quite low shadow prices. There is no evidence of learning to respond to the true shadow price in the second year post-switch.

Systematic review of healthcare costs related to mental health conditions among cancer survivors

“…None of the studies included in the review examine out-of-pocket costs separately for cancer survivors with mental health conditions compared to cancer survivors without mental health conditions. With increasing cost-sharing, cancer survivors have to bear a higher proportion of the economic burden of mental health conditions [41]. Cancer survivors were significantly more likely than those without a cancer history to forgo mental healthcare due to financial reasons [42].…”

The long term effects of “Consumer-Directed” health plans on preventive care use

“…Fronstin et al (2013) found a decrease in the first year after enrollment, but no effect after year two. The majority of studies have found a sustained decrease in cancer screening rates (Buntin et al 2011; Haviland et al 2011; Charlton 2011; Wharam et al 2011; Brot-Goldberg et al 2017). No studies, to our knowledge, have found an increase in cancer screening rates after CDHP enrollment, with the exception of Wharam et al (2011) which found a slight increase in fecal occult blood testing.…”

“…One is that most of these studies use data from a single treatment employer (Fronstin et al 2013; Brot-Goldberg et al 2017) or a single insurance carrier (Wharam et al 2008; Wharam et al 2011; Wharam et al 2012; Fronstin et al 2013; Brot-Goldeberg et al 2017; Rowe et al 2008; Charlton et al 2011). Because of the small number of treated units, idiosyncratic changes may drive the results.…”

The moral hazard effects of consumer responses to targeted cost-sharing

“…However, evidence suggests that traditional cost-sharing only addresses moral hazard on the extensive margin. HDHPs lead to an overall reduction in utilization but do not lead patients to receive care from less expensive providers (Sood et al ., 2013; Huckfeldt et al ., 2015; Brot-Goldberg et al ., 2015; Haviland et al ., 2016). …”

“…While the initial hope was that by giving consumers “skin in the game” HDHPs would spur price shopping for health care services, recent evidence finds that nearly all of the consumer responses come through decreased utilization of care (Brot-Goldberg et al ., 2015; Haviland et al ., 2016). This evidence is not inconsistent with the HIE.…”