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Cost-Sharing

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Cost-Sharing

Cost-sharing is an arrangement where a patient and their health insurer both pay a

percentage of the medical expenditure during a year. Health insurers often require the user

to pay a portion of their expenses to prevent abuse of healthcare services and keep

insurance premiums affordable. Insurance plans with lower cost-sharing (i.e. total out of

pocket costs and copayments) usually feature higher premiums, while those with higher

cost-sharing have lower premiums. Cost-sharing reduces insurance premiums for patients

in addition to minimizing the risk of over-utilization faced by health insurers. Salampessy

et al. (2018) noted that copays reduced the frequency of hospital visits for minor injuries,

which consequently led to reduced insurance premiums.

However, the cost-sharing schemes affect the quality of healthcare that a patient

seeks. Since they have to meet a certain minimum out of pocket expenditure, some patients

may opt for low-cost and low-quality healthcare rather than the higher-priced and better

options. Studies have noted that high-intensity care improves patient outcomes as there

are lower mortality rates a year after hospitalization. Furthermore, Goodman-Bacon

(2018) identified decreased mortality among Medicare beneficiaries who received high-

intensity care in general, vascular, and orthopaedic surgeries. Nevertheless, patients have

to remain mindful of the costs they incur in their medical visits. There is evidence that the

US healthcare system adopts expensive new therapies without reliable evidence on their

efficacy. For example, some cancer drugs cost well over $100,000, yet only extend a

patient's life expectancy by 30 days (Burke & Ryan, 2014). Additionally, patients find that

prices of similar services vary between regions and institutions. Medicare reimburses care

providers based on multiple factors such as geographic region, indirect medical education,
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and the hospital's burden of indigent patients. Consequently, variances in insurance

payments are created through negotiations with doctors.

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References

Burke, L. A., & Ryan, A. M. (2014). The complex relationship between cost and quality in US

health care. AMA Journal of Ethics, 16(2), 124-130.

Goodman-Bacon, A. (2018). Public insurance and mortality: evidence from Medicaid

implementation. Journal of Political Economy, 126(1), 216-262.

Salampessy, B. H., Alblas, M. M., Portrait, F. R., Koolman, X., & van der Hijden, E. J. (2018).

The effect of cost-sharing design characteristics on the use of health care

recommended by the treating physician; a discrete choice experiment. BMC health

services research, 18(1), 1-14.