Over the past 20 years, two major approaches to slowing the growth of health care costs have emerged. One focuses on the delivery system, encouraging physicians, hospitals, and others to improve the way they deliver care. The other targets consumers, hoping to turn patients into more price-sensitive shoppers. Although both have had some success, it’s increasingly clear that these approaches are on a collision course: poorly structured benefit designs will sharply limit the effectiveness of efforts to promote higher-value care through payment and delivery-system reform. But a crash is not inevitable.
Interest in reforming care delivery grew out of observations regarding the relative efficiency of integrated medical group practices, growing concern about variation in quality of care, and evidence that the greater use of specialist and hospital-based care in high-cost U.S. regions and health systems did not translate into better quality or superior health outcomes.1 Reform initiatives focused on both support for practice transformation and changing payment systems to reward better care and lower costs — now widely referred to as “value-based payment.” One example of these efforts is the patient-centered medical home (PCMH) model, which has been broadly adopted, with millions of patients now receiving care through practices certified by the National Committee on Quality Assurance. Another is the recent growth of accountable care organizations (ACOs), which now provide care to more than 26 million Americans. These approaches are rooted in the notion that improved delivery of effective primary care and better coordination of patient care over time are essential to improving quality and reducing costs.
The consumer-focused strand of activity largely emerged from the private sector. These efforts were spurred by the Rand Health Insurance Experiment, a randomized trial that demonstrated that cost sharing reduced utilization (and thus spending) with no apparent adverse health effects on the average participant but with potential negative effects on low-income participants with chronic illnesses.2 Because benefit design as a lever for constraining health care spending has been readily accessible to both large, self-insured employers and health plans serving small businesses, cost sharing has increased dramatically. Since 2006, the proportion of Americans with employer-sponsored coverage involving deductibles of over $1,000 has increased from 10% to 46%, and many of these enrollees must fully meet their deductible before receiving any coverage for primary care. In addition, 93% of covered workers must pay a portion of the costs for primary care visits in the form of either coinsurance or copayments, with copayments now averaging $24.3
The conflict between these two approaches is clear. The success of provider-focused reform strategies, such as ACOs and PCMHs, depends directly on having patients engaged with their care team — usually a primary care practice. Early evidence suggests that ACOs achieve their substantial successes in improving quality (including improvement on measures of patient experience, clinical outcomes, and readmission rates) by ensuring that primary care patients receive needed preventive and chronic disease care.4 Their modest successes in controlling costs appear to be generated by more effective referrals (for commercial populations) and better care coordination (for high-cost Medicare beneficiaries). Substantial or poorly targeted cost sharing could easily undermine these approaches. Numerous studies have shown that cost sharing is a blunt instrument, causing patients to cut back on both needed and wasteful care. A recent study showed that the adoption of a high-deductible health plan in a relatively high-income population led to a 10% reduction in the use of preventive services and an 18% drop in physician visits, with the greatest reductions occurring in the sickest quartile of patients.5
Although trends in benefit design are worrisome, the Affordable Care Act (ACA) set some important requirements for health plans offered in both the employer and individual markets, including mandatory coverage for medical and mental health care and provision of free preventive care services. In the employer market, however, the ACA largely leaves benefit designs unregulated, aside from imposing minimum value requirements. The individual insurance marketplaces, dominated by the state-based and federal exchanges, go a few steps further: products must fall into one of four tiers of actuarial value, ranging from “platinum” products with comprehensive benefits but high premiums, through “gold” and “silver,” down to “bronze” products with thinner benefits but low premiums. Though all products must include a defined set of essential health benefits and none may impose cost sharing exceeding a defined annual maximum for in-network care, states can determine how much flexibility to allow health plans in setting deductibles, copayments, and coinsurance.
Because most exchanges do not standardize the benefit designs health plans can offer, consumers face a confusing array of products, many of which will undermine initiatives in delivery-system reform. For example, in Colorado — whose exchange gives health plans free rein on benefit designs — Denver residents can choose from 35 different silver products offered by eight health plans. Of these products, 15 require the consumer to meet the deductible before insurance kicks in to cover outpatient care. In 2015, for example, the lowestcost silver plan had a premium for a 30-year-old of $183 per month, half as much as that of the most expensive silver product. In the lowest-cost plan, however, all outpatient services other than the required free preventive services and generic drugs are subject to a $3,900 deductible.
California has taken a different approach. As an active purchaser, Covered California, the state’s insurance exchange, opted to standardize the designs of deductibles, copayments, and other cost sharing for all its contracted health plans within each of the four tiers. The aim is to enable consumers to make apples-to-apples comparisons among plans based on cost and network composition (rather than hard-to-interpret differences in deductibles and copayments) and to ensure that consumers do not face undue financial barriers to receiving primary and other high-value care.
The pie chart shows the levels of cost sharing for the exchange’s 1.3 million enrollees. Those who select a silver product face no deductible and modest copayments for physician visits and other outpatient services; subsidies further reduce copayments for lower-income enrollees. Anyone selecting a bronze plan receives one free primary care visit and three visits that are not subject to the annual deductible.
Other elements of California’s approach include encouraging plans to support PCMH and ACO models. For instance, Covered California currently requires plans to report the percentage of enrollees receiving their care from either type of organization and intends to require increasing use of such integrated delivery systems in coming years. Many of the exchange’s consumers are therefore enrolled in ACOs and PCMHs that have multiple public and private ACO contracts.
A few other states — including Connecticut, Oregon, and Massachusetts — have adopted standardized benefit designs, and the federal marketplace recently indicated that it’s starting down this path by making a standardized design voluntary for plans in 2017. The exchanges, however, cover only 10.2 million Americans, or 4% of the population under 65 years of age. If meaningful health care reform is to reach a critical mass, more employers will need to partner with health plans to engage their employees in more integrated delivery models.4
California’s example suggests that it’s possible to avoid a collision between consumer- and provider-focused efforts to improve care and reduce cost growth. Benefit designs encouraging utilization of high-quality, accessible primary care that’s supported by an effective organizational structure should help consumers better manage their health risks and chronic conditions and more effectively navigate the challenges of serious illness. At the same time, carefully designed cost sharing may help motivate patients to work in partnership with their primary care physician and others to make wise decisions about what discretionary care they truly need and want.
Whether we can slow the growth of health care spending while improving both health and health care is far from certain. This outcome is much more likely, however, if leaders in the public and private sectors strive to align benefit designs with delivery-system reforms.
From the Dartmouth Institute for Health Policy and Clinical Practice, Lebanon, NH (E.S.F.); and the California Health Benefits Exchange, Sacramento (P.V.L.).
1. Fisher ES, Bynum JP, Skinner JS. Slowing the growth of health care costs — lessons from regional variation. N Engl J Med 2009; 360: 849-52.
2. Newhouse J. Free for all: lessons from the Rand health insurance experiment. Cambridge, MA: Harvard University Press, 1993.
3. 2015 employer health benefits survey. Washington, DC: Henry J Kaiser Family Foundation, 2015 (http://kff.org/health-costs/report/2015-employer-health-benefits-survey).
4. Song Z. Accountable care organizations in the U.S. health care system. J Clin Outcomes Manag 2014; 21: 364-71.
5. Brot-Goldberg ZC, Chandra A, Handel BR, Kolstad JT. What does a deductible do? The impact of cost sharing on health care prices, quantities and spending dynamics. NBER working paper 21632. Washington, DC: National Bureau of Economic Research, 2015.
This Perspective article originally appeared in The New England Journal of Medicine as “Toward Lower Costs and Better Care — Averting a Collision between Consumer- and Provider-Focused Reforms.”