The Skin-in-the-Game Debate

One of the longest running debates in U.S. healthcare — and in managed care in particular — is whether shifting costs on to patients would help constrain costs and reduce wasteful spending. Proponents say insurance blunts people’s appetites for shopping for low-cost, high-quality care because it makes them insensitive to price and that most health insurance benefit design is a distortion of insurance’s intended (and most effective) purpose, protection against rare, high-cost events. Critics say cost-sharing can reduce the quality of care, penalize people who are sick and need to use healthcare and, in the actual practice, has failed to change use patterns and turn people into smart shoppers.

The landmark RAND Health Insurance Experiment is often referenced in the back-and-forths. What the RAND study found was that cost sharing does, indeed, reduce the use of healthcare services and that had negligible effects on health for the average person. But there were also findings that showed adverse consequences for people who are ill and less well off. As a result, both sides of the skin-in-the-game debate grab aspects of the RAND findings to support their arguments.

Cost sharing in U.S. healthcare is just fodder for debates. According to the KFF’s annual survey of employer health insurance benefits, 29% of covered workers were enrolled in a high-deductible health plan (HDHP) with a savings option in 2023, a proportion consistent with enrollment the last several years.

For anyone who wants to brush up on the cost-sharing debate, today’s issue of JAMA Internal Medicine pairs a couple of well-written opposing viewpoints piece on the topic.

Arguing for more cost sharing (paired with healthcare savings accounts) are David A. Hyman, M.D., J.D., of the Georgetown University Law Center; Sunjay Letchuman, of the Icahn School of Medicine at Mount Sinai; and Ge Bai,Ph.D., of the Johns Hopkins Carey Business School and the Johns Hopkins Bloomberg School of Public Health. Arguing against more cost sharing (or a more refined version of it) are Anna D. Sinaiko, Ph.D., and Benjamin D. Sommers, M.D., Ph.D., of the Harvard T.H.Chan of School of Public Health.

The pieces are not strictly constructed as a point-counterpoint debate. But they do stake out opposing positions. Here are some of the arguments and the counterarguments in the two pieces:

Insurance leads to higher prices

Hyman and his co-authors say that health insurance increases prices because beneficiaries are insulated from them — they become insensitive to the price of healthcare because they are not paying for it directly. They say that insurers have limited interested in negotiating lower prices because they don’t benefit from them and that payers (employers, other entities who buy healthcare coverage) don’t have the market power to influence price. They say that prices for medical products and services not covered by insurance have gone down because the insulting effect of insurance is removed.

Sinaiko and Sommers argue that many studies have shown that cost sharing will “generally not produce all of its promised benefits” and that it puts many people at higher risk for adverse outcomes. They cite research that shows that use of price transparency tools that are designed to help people shop for healthcare is low and that people with HDHP coverage (and, therefore, exposed to price) don’t choose lower-priced physicians. They cite research published in 2017 in Health Affairs that shows that HDHPs reduce the use of both appropriate and inappropriate care.

Insurance coverage does not benefit health

Advocates for expanding health insurance to cover more people in the U.S., a group that would include supporters of the Affordable Care Act (ACA) say health insurance enables to access to healthcare services that keep people healthier. Hyman, Letchuman and Bai say that results from an often-cited randomized experiment with Medicaid coverage in Oregon showed that Medicaid coverage did improve financial security, reduce depression rates and increase use of healthcare services but had no effects on blood pressure, cholesterol levels or HbA1c levels. They point to another nonrandomized study of Medicaid expansion in three states as producing similar evidence of financial and other kinds of benefits but not on health conditions.

Sinaiko and Sommers cite a New England Journal of Medicine review article written by Sommers, Atul Gawande, M.D., M.P.H., and Katherine Baicker, Ph.D., as supporting the case that insurance coverage results in better disease management, “improved health-related well-being” and lower mortality rates (Baicker was the lead investigator of the Oregon Medicaid study. They also say that millions of Americans are underinsured “meaning that they are high risk for financial distress in case of illness, another harmful outcome.”

Smarter — not more — cost sharing

Sinaiko and Sommers don’t dismiss cost sharing altogether but write in favor of a “smarter” version of it rather “as opposed to blunt tool, which HDHPs typically are.” Their examples of smart cost sharing include simplified information on hospital costs in a tiered hospital; they point to a 2020 study that showed that such information can produced substantial savings (8% to 17%). They hold up benefit design that creates an incentive to use high-value services as preferable to high deductibles, noting that ACA requires more private insurers to cover recommended preventive care free of cost sharing and that insurers (unnamed) are exploring zero cost sharing for care for chronic conditions such as diabetes. They say that proposals that would exempt telehealth from deductibles and cost sharing miss the mark “as the value of the care rather than the modality through which it is delivered ought to be the primarydeterminant for cost sharing approaches.”

Hyman and his co-authors argue for healthcare insurance that would include catastrophic coverage and full coverage of immunizations and all the preventive services that have an “A” rating from the U.S. Preventive Services Task Force; those are some of the high-value services that Sommers and Sinaiko say that benefit design with smart cost sharing would exclude. But Hyman, Letchuman and Bai also envision “less comprehensive coverage” paired with health savings accounts.

Beef up health savings accounts and expand the kind of services they could be used for

Hyman, Letchuman and Bai say patients who are ill or financially disadvantaged could be protected large, more flexible health savings accounts. Most HDHPs include health savings account, money that plan members can set aside for healthcare expenditures before the high deductible is met and coverage kicks in. Hyman and his co-authors say policymakers should allow government subsidies of health saving accounts and tax-deductible cash transfers from organization and individuals. They also call for liberalizing the sorts of services that money in health care savings accounts could be used to pay for to include services as such as transportation to medical visits and residential mental health and substance treatment. They anticipate criticism that such arrangement could lead to ill-advised spending and vulnerability to high costs from a major medical episode. They counter that everyone would still have a catastrophic coverage and that “individuals are better situated than anyone else to make financial decisions about their own healthcare.”

Sinaiko and Sommers’ critique of cost sharing does delve deeply into health savings account. They note, though, that health savings accounts exacerbate income-based inequities in healthcare because they allow people to pay for healthcare with pretax dollars, so people in higher tax brackets by virtue of having higher incomes benefit more (i.e., a pretax dollar is worth more to someone who pays at a higher tax rate).

Closing arguments

Hyman and his co-authors argue that broader health insurance should not be equated with better healthcare or improved health. “Policy solutions to improve health while containing costs should focus on allowing patients, not insurance, to control health care dollars whenever possible.”

Sinaiko and Sommers argue that controlling costs in healthcare is largely a question of prices and that cost sharing to cut [the quantity of healthcare services used] is a “recipe for harm.” They say that smarter cost sharing can play a role in reining in healthcare costs “but should only be used as part of a broader policy effort that views do no harm as the guiding principle.”