Patients Aren’t Playing Along With Skin in the Game

One of the great hopes in recent years for controlling runaway health costs is to increase patients’ financial stakes in paying for care. This shift in payment responsibility aims to make health more like other industries, where consumers price shop and providers compete for their business.

The practical application of this theory is the high-deductible health plan, and it has been applied vigorously by employers. In the past five years, the percentage of adults aged 18-64 with employment-based coverage enrolled in an HDHP increased from 26.3 percent to 39.3 percent. In the Affordable Care Act’s individual marketplaces, almost 90 percent of 2015 enrollees were in a high-deductible plan with a deductible of at least $1,300 for individuals and $2,600 for families. Many faced many thousands of additional dollars out of pocket before their insurance kicked in.

These consumers literally have their skin in the game. Standard economic behavior under these conditions should look a lot like car shopping, with research and comparisons and maybe even deal making, all of which would make providers respond with better pricing.

But it’s not happening. Despite a 67-percent increase in deductibles in the employer market since 2010, patients did not do any meaningful comparison shopping. This preeminent market-based solution to cost control needs to be drastically re-thought.

I recently helped conduct a national survey of almost 3,000 non-elderly adults who had received medical care in the past 12 months. Only 13 percent of those who encountered out-of-pocket costs had sought some information about their expected spending before receiving care, and only 3 percent had gone to the trouble of actually comparing costs across providers.

These patients are not driven by a misconception about quality and price: A majority believed that high-cost providers did not necessarily offer higher quality, and that price shopping was important. But when it came down to it, they were in the dark about how to proceed and very dependent on their doctors and hospitals for guidance.

A number of studies demonstrate that as consumers’ costs rise, their use of care drops — which means HDHPs do result in less spending. But they are not reducing spending in smart ways. In a recent study, I found that even though high-value care like preventive care is free in high-deductible plans, there is no change in use after enrollment in these plans. Similarly, people do not seem to be reducing use of low-value care, such as imaging for back pain, when faced with higher deductibles. In a separate study of how enrollees in HDHPs changed their use of drugs, I found the overwhelming percentage of total savings came from reducing use of therapies rather than switching to lower-cost generics.

Recently a colleague on the national survey, Ateev Mehrotra of Harvard, wrote about his own horrible experience with a high-deductible plan. He was shopping for the best price for a necessary surgery to remove a stye from his daughter’s eyelid. He had every advantage possible — he lived in Massachusetts where price transparency laws are in effect, he is a physician and health policy researcher with lots of inside information, and the surgery was not urgent so there was time to shop.

After a month of struggling to get price quotes from his health plan and ophthalmologists, he gave up and had his daughter’s original ophthalmologist proceed even though he had no idea what the final bill would be.

Medical pricing is notoriously opaque, so advocates of consumer-driven care argue that increasing transparency would result in more effective shopping. But as my colleague’s experience demonstrated, transparency is a difficult concept to pin down and execute. And even if adequate tools are available, we found that overall rates of use are low. Patients generally feel ill-equipped to make medical decisions and might just want their doctors to decide where to get the next medical test or procedure.

It’s time to give up on trying to force patients to be the cost controllers in health care – especially with blunt tools such as high deductibles. A better way is to increase skin in the game for doctors and medical groups, whose knowledge and experience naturally make them much better shoppers. We know doctors respond to financial incentives and nudges in smart ways. Medical groups given a set annual budget for caring for a specified population reduced spending by about 6 percent in the first year, and much of the savings was due to referrals to lower price providers and settings.

If insurers, both public and private, create incentives for doctors and other providers to make value-based decisions, we can take consumers off the hook and make real progress in reining in American health care costs.


Neeraj Sood, Ph.D., is a professor at the Leonard D. Schaeffer Center for Health Policy & Economics and the Price School of Public Policy at the University of Southern California.

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