Over 100 million Americans medical debt, according to a recent study by Kaiser Health News-NPR. And about a quarter of American adults in this debt owe more than $5,000. This is not because they are uninsured. More often this is because they are underinsured.
The Affordable Care Act was supposed to improve access to health insurance, and it did. It reduced the number of Americans uninsured due to the expansion of Medicaid and the creation of health insurance marketplaces. Unfortunately, it hasn’t done enough to protect people from rising out-of-pocket expenses in the form of deductibles, co-payments and co-insurance.
Out-of-pocket spending doesn’t exist for nothing; people are less probably spend their own money than an insurance company’s money, and these costs would make patients think before they receive unnecessary care. But this moral hazard argument assumes that patients are rational consumers, and it assumes that cost-sharing in the form of deductibles and co-payments makes them better buyers. Research shows this is not the case† Instead, additional costs mean that patients do not seek care, even if they do need it.
Cost-sharing is not designed in such a way that it could divert people from inefficient care towards efficient care. Deductibles are frankly ridiculous† Using deductibles assumes that all medical expenses are the same and the system should discourage them all, starting with every January 1. There is no valid argument why it should. The flu season peaks in the winter. At the beginning of this year we were in an Omicron peak. That makes the time when people are most discouraged from getting care pointless.
Co-pays and coinsurance aren’t much better. They treat all patients the same and assume that all patients should be treated the same.
In a working paper of the National Bureau of Economic Research published last year, researchers examined how increases in cost-sharing affected how older adults, who need more care, pay and use drugs. Remember, people age 65 and older in the United States are covered by what most consider pretty comprehensive coverage: Medicare. However, the researchers claimed that a simple $10 increase in costs, which many would consider a small amount, resulted in about a 23 percent reduction in drug use. Worse, they said it led to a nearly 33 percent increase in monthly deaths. In other words, making seniors pay $10 more per prescription, people died.
These seniors were not taking optional, esoteric, exceptionally expensive drugs. This finding was for medications that treat cholesterol and high blood pressure. In fact, they were considered “high-quality” drugs because they were proven to save lives. Furthermore, people at higher risk of heart attack or stroke were more likely to cancel their prescriptions than people at lower risk.
Humans are not smart shoppers or rational spenders when it comes to healthcare. If you make people pay more, they consume less care, even if it is for life-saving treatments.
Plus, a $10 increase in drug cost sharing is a small potato compared to what most people have to pay out of pocket each year for care. The average deductible on a silver plan on the ACA exchanges rose to $4,500 in 2021. When people tried to buy plans with a lower premium, at a bronze level, the average deductible rose to more than $6,000. Granted, there are some cost-sharing discounts available to those earning less than 250 percent of the federal poverty line, but even after taking those into account, the average deductible was over $3,100 for silver plans.
Those who receive insurance from their employers are not much better off than those who buy on the ACA marketplaces. The average deductible for insurance policies offered by major companies in the United States was over $1,200. At small businesses, it was over $2,000.
Those are only the deductibles. After being paid, people are still required to cover co-pays and coinsurance until they reach their own maximums. The good news is that the ACA limits these in plans sold on the exchanges† The bad news is that they are astronomical: $8,700 for an individual and $17,400 for a family.
A large majority of Americans don’t have that kind of money in accounts, especially after paying an average of about $5,000 in bounties each year for a benchmark individual silver plan. Half of American adults don’t even have $500 to cover an unexpected bill. Anyone who needs significant health care will lose the entire deductible, which means thousands of dollars, and if they are seriously ill, they will likely make the most out of their own pocket.
Of course, Americans have medical debts. The Kaiser Family Foundation estimates the nation’s collective medical debt at nearly $200 billion.
It is worth noting that the cost of health care in the United States is so high that even expensive premiums are not enough to cover the full amount without significant out-of-pocket expenses. That doesn’t mean there aren’t better cost-sharing options. We could treat them with diagnosed chronic diseases different, like many countries in Europe to do† It makes sense to try to discourage healthy people from overtreatment, but many people, me included, need care that costs money every day. There’s no point in trying to persuade me to reconsider. US leaders might also consider adapting reference pricing systemwhere the health system determines what the lowest cost, highest quality care and make it available without any expenses. Cost sharing can then be applied to other options that may have more cost or less evidence.
The purpose of insurance is to protect people from financial ruin when they have to deal with unexpected medical costs. Reducing the amount they have to pay from six figures to five is necessary, but not sufficient. It is not enough to give people insurance. That insurance must also be comprehensive.