Containing Out-of-Pocket Healthcare Costs

In the effort to create a consumer-driven healthcare industry, innovations are needed to help individuals and families carry a hefty cost-sharing load.

With deductibles and copayments spiking, health plans and employers are pushing the bounds of consumer tolerance for out-of-pocket healthcare spending.

A pair of reports released this month by the Washington, DC-based Commonwealth Fund spotlight the delicate balancing act playing out in the elevation of consumers' economic role in the health insurance market.

On Jan. 8, CF released a report on employer-sponsored insurance (ESI) that showed a slowdown in health insurance premium hikes over the past decade has been accompanied by a sharp rise in consumer out-of-pocket spending for healthcare. The findings include data indicating consumer spending for premiums and deductibles nearly doubled from 5.3% of median household income in 2003 to 9.6% in 2013.

On Jan. 15, CF released a report that showed a significant drop in the uninsured population from 37 million people in 2010 to 29 million people in 2014 as well as improvement in affordability measures, but the report concluded that "excessive cost-sharing for Americans across all insurance types could jeopardize improvements in access to care and medical bill burdens."

I quizzed the lead authors of both studies about a healthcare reform quandary: In the push to create a consumer-driven market for medical services, how high can patient cost-sharing be elevated without prompting a consumer backlash?

Cathy Schoen, lead author of the ESI report and executive director of the private foundation's council of economic advisers, told me that consumers will ultimately draw the line on cost-sharing.

"Is there a limit to it? That's going to come from families and consumers themselves. We are clearly far higher in cost-sharing that anyone would have predicted five years ago. There is a question of how far this needs to go before employees are going to be cost-sensitive… and will look for alternative options for care," she says.

High Deductibles
Consumers are feeling the pinch of higher healthcare cost-sharing. "We're clearly at the point where the deductibles are over $1,000," Schoen says. "If there's a family plan, there are two deductibles. It's leaving less for everything else."

Sara Collins, PhD, lead author of the CF report on health insurance coverage levels and affordability, says that another CF consumer affordability study released in November showed high deductibles are a double-edged sword in the struggle to create a consumer-driven healthcare industry.

"People who had deductibles that were high relative to their income were much more likely than those with lower deductibles as a share of their income to say they had avoided or delayed needed care such as going to the doctor when they were sick or filling a prescription. While deductibles have been used in part as a way to reduce the use of unnecessary care, we find evidence that they also reduce the use of necessary care, particularly among people with middle to lower incomes."

To avoid making cost-sharing overly burdensome for consumers, Collins says several challenges must be addressed.

"Innovation in benefit design is needed to provide incentives to people to get timely care, rather than giving people incentives to delay care, which is what we are seeing in our surveys… as a response to ever growing deductibles."

"In addition, " she says, "system-wide efforts to address the underlying rate of healthcare cost growth—and we are seeing a great deal of innovation in the way care is organized and paid for across the country —will be the key to achieving affordable premiums and out-of-pocket costs in employer-based as well as individual marketplace insurance over time."

Slow Income Growth
"But the other major issue is slow income growth… Even though we see a slowdown in deductible growth in the past few years, median income hasn't grown much if at all in most states, so people with low and moderate incomes are still spending more as a share of their incomes."

Christine Riedl, director of national accounts strategy and product management at Hartford, CT-based Aetna, says that the shift to more value-based models of healthcare delivery is needed to cushion the cost-sharing blow on consumers.

"With the amount of waste in our healthcare system and the increasing costs, we have to join forces to move our healthcare system to one that focuses on better management of individuals and populations—where we pay for value delivered, not services rendered," she says.

"At Aetna, we are partnering with the providers, and by 2018, at least half of all our claims payments will be paid to doctors and providers who practice value-based care. Today, more than 3 million Aetna members receive care from doctors committed to the value-based approach."

Riedl cites several examples of Aetna embracing value-based care, including 2013 data from the carrier's accountable care collaboration with Phoenix-based Banner Health Network, which posted a 5% reduction in overall medical costs.

Health plans have to help consumers play an effective role as economic agents in value-based delivery of healthcare services, she says. "Individuals are overwhelmed with information on choosing the right plan, benefit and premium… so it's important to provide consumers with meaningful information at the right time, and in a manner that is relevant and preferable to them."

Engagement and Incentives
Riedl says Aetna is providing health plan members with a combination of consumer engagement tools and financial incentives to help boost informed decision making. Online resources include pre-enrollment and plan selection tools that give the complete picture of total costs as well as transparency tools that provide insight on cost and quality.

Financial incentives are crucial to helping guide consumers to finding the most cost-effective healthcare coverage, Riedl says. "Financial incentives are also an important element to any benefit and wellness strategy to encourage consumers to take action on their health; for example, for participation in wellness programs, to complete biometric testing or to obtain routine preventive care.

Incentives can not only help lower consumer costs today, they reward healthy behaviors that can prevent health complications—and higher costs—in the future."

Encouraging healthy behaviors is a fundamental building block of affordable healthcare, she says.

"One issue that deserves more attention is lifestyle and the growing burden of chronic diseases, which add significantly to escalating healthcare costs. We have to focus the system around wellness to stem the cost increases we're seeing from an aging population and obesity. The consumers have to take responsibility for improving their health through a focus on wellness. This is also a focus of the value-based care programs we're deploying with providers. They reach out to patients who may not step foot in their office for preventive care – so we identify and head off issues before they develop into chronic conditions," Riedl says.