Is Paying More Out-of-Pocket For Health Care Good Or Bad?

Thursday, March 24, 2016 | Larry Sobal

If you have health insurance, there's a good chance you're paying more for it in 2016. Sure, health care and health insurance costs increase year to year, like most expenses. But the numbers for 2016 are eye-popping: In some states, insurers are seeking 20 to 40 percent increases in premium rates on public exchanges. Meanwhile, people with employer sponsored insurance are paying a much greater share of their own costs. A typical family of four will spend more than $24,600 on health care this year, including their share of premiums plus out-of-pocket deductibles and copays, according to the 2015 Milliman Medical Index.

The amount Americans spend on health care out-of-pocket reached $416 billion in 2014 and is expected to reach $608 billion by 2019. Part of that growth can be attributed to the Affordable Care Act, and an estimated 20 million people who gained health insurance coverage between the passage of the law in 2010 and early 2016—a historic reduction in the uninsured. At least some of these people are likely consuming health care services as a result of having coverage, even if there is an out-of-pocket component.

The question is whether people are cutting back on questionable (and possibly unnecessary) consumption of services or whether they are foregoing necessary medical treatment. The data suggests it is a bit of both.

While overall annual premiums continue to rise, it’s the increase in annual deductibles that have skyrocketed. Premiums for single coverage have grown roughly in line with overall health care costs over the past decade, deductibles have increased almost three times as much. For workers with an annual deductible for single coverage in 2006, the average was $584. For 2015 it was $1,318. Families now average a $4,332 deductible, according to the Kaiser Family Foundation.

So are increasing out-of-pocket costs good or bad for health care?  There are a couple of ways to look at it. Obviously, it’s a tremendous financial burden on individuals, but higher deductibles have been shown to deter people from using health care services, thus potentially reducing overall health care consumption and spending.

The question is whether people are cutting back on questionable (and possibly unnecessary) consumption of services or whether they are foregoing necessary medical treatment. The data suggests it is a bit of both.

Here’s another interesting viewpoint. In the major industrialized countries, individual out-of-pocket spending on health care had clustered around 15% for the last 30 years. As recently as the 1980’s, individuals in the United States contributed more toward their health care (averaging almost 25%) than any westernized country except Switzerland. However, by 2003 the U.S. had moved toward the bottom of the list. Considering that these other countries are often lauded for having much lower health care spending and better quality, it raises the question whether individuals paying for a higher percentage of health care is a major factor in overall health care system performance and societal expectations about how health care is delivered.

No doubt, the amount that people have to pay for their health care is an emotionally charged and financially painful subject and I’m not calling for substantial increases in out-of-pocket costs.

What are your thoughts?

 

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Larry Sobal is Executive Vice President of Business Development at MedAxiom. He has a 35-year background as a senior executive in medical group leadership, hospital leadership and insurance. As part of his current role, Larry consults, writes and presents on topics relevant to transforming physician practices and health systems.

 

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