BUSI 429 Week 2 Discussion Board Forum 2 Example

Discussion Board Forum 2: Cost Sharing and the Demand for Care

BUSI 429 Healthcare Economics, Discussion Board Forum 2

Thread by [Student Name]

The employer, its plan decision and the classmates are composites; the textbook, Scripture and the peer-reviewed sources cited are real.

Our health system's human resources committee is considering moving its own employees from a low-deductible plan to one with a $3,000 deductible and a health savings account. The committee's argument is that employees with more money at stake will compare prices, choose cheaper providers and avoid unnecessary care, so total spending will fall without harming anyone. That argument rests on the economics of demand, and it deserves a careful test.

Feldstein (2015) explains that the quantity of medical care people demand depends partly on the price they pay out of pocket, and that insurance lowers that price, which raises use. Economists call the extra use moral hazard. How much use falls when cost sharing rises depends on the price elasticity of demand, and for most medical services demand is relatively inelastic, meaning use falls by less than the price rises. The theory therefore predicts some savings from a higher deductible. What it does not tell us is how those savings arise, and that is the question that matters most to an employer that cares about its workers' health.

Brot-Goldberg et al. (2017) examined a company whose workers had paid nothing for care until the employer moved everyone into a high-deductible design. Firm-wide health spending dropped by 11.8% to 13.8%. Every bit of that drop came from people using fewer services; workers did not seek out cheaper providers, and two years later they still had not learned to. The cuts reached nearly every kind of service, from preventive visits that likely mattered to imaging that often did not. They also responded to the price they saw at the moment of care, cutting spending by 42% while under the deductible, even when they would likely exceed it by year's end.

For our committee, the evidence suggests that a high deductible would probably save money but not in the way we hoped. Employees would not become shrewd shoppers; many would simply skip care, some of it care that prevents larger costs later. A deductible lowers spending by lowering use, and it cannot tell valuable care from wasteful care. If the committee proceeds, it should exempt preventive services and chronic disease medications from the deductible and provide real price information. Proverbs warns against withholding good from those who need it when it is in one's power to give (English Standard Version Bible, 2001/2016, Proverbs 3:27), and a plan that discourages needed care for the sake of savings should be designed with that warning in mind.

Reply to Logan

Logan, you argued that patients will learn to shop once they are spending their own money, and that early studies understate the effect because people need time to adjust. That is a reasonable expectation, and economic theory supports it in markets where prices are visible and buyers can compare them easily. The evidence from health care, however, has not borne it out so far. Brot-Goldberg et al. (2017) tracked workers for two years after their employer's switch and saw no sign of comparison shopping emerging in the second year; all of the savings came from using less care. Feldstein (2015) points out that health care prices are often hidden until after the service, that patients rely on physicians to choose providers and tests and that many services are bought in urgent situations, all of which make shopping difficult. Price transparency tools might change that over time, but only if prices are easy to find and compare and if physicians help patients use them. A practical step for your organization might be to provide a shoppable price list for the twenty most common outpatient services and to measure how many employees actually use it. If few do, that result would tell the benefits committee that a higher deductible is mainly a cost shift, not a shopping incentive. Would your employer be willing to pilot price information before changing the deductible? Running the pilot first would also give the committee a baseline, so that any later change in spending could be traced to its real cause.

Reply to Priya

Priya, you suggested that if the health system adopts a high-deductible plan, it should lower or remove copays for medications that treat chronic conditions. Evidence supports that idea, which is often called value-based insurance design. Chernew et al. (2008) studied a large employer that reduced copayments for five classes of chronic disease medications, including drugs for diabetes and high blood pressure, and compared it with an employer that used the same disease management program without the copay change. Adherence improved for four of the five medication classes, reducing nonadherence by 7% to 14% beyond what the disease management program alone achieved. Brot-Goldberg et al. (2017) showed that people facing a high deductible trimmed useful care and wasteful care alike, so exempting high-value services is a way to keep the savings from deductibles while protecting the care most likely to prevent costly complications. Feldstein (2015) explains that demand responds to the out-of-pocket price, which means lowering that price for valuable services should raise their use. The design challenge is choosing which services to protect and explaining the plan clearly to employees, since a benefit that people do not understand will not change their behavior. A one-page summary showing which drugs and visits cost nothing would help. The savings may also be larger than they first appear, because better adherence to blood pressure and diabetes medications tends to prevent emergency visits and admissions that are far more expensive than the drugs themselves. Would your organization start with medications for diabetes and hypertension, where the evidence is strongest and the conditions are common among employees?

References

Brot-Goldberg, Z. C., Chandra, A., Handel, B. R., & Kolstad, J. T. (2017). What does a deductible do? The impact of cost-sharing on health care prices, quantities, and spending dynamics. The Quarterly Journal of Economics, 132(3), 1261-1318. https://doi.org/10.1093/qje/qjx013

Chernew, M. E., Shah, M. R., Wegh, A., Rosenberg, S. N., Juster, I. A., Rosen, A. B., Sokol, M. C., Yu-Isenberg, K., & Fendrick, A. M. (2008). Impact of decreasing copayments on medication adherence within a disease management environment. Health Affairs, 27(1), 103-112. https://doi.org/10.1377/hlthaff.27.1.103

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Feldstein, P. J. (2015). Health policy issues: An economic perspective (6th ed.). Health Administration Press.