h2>Dig deep: Impacts and implications of rising out-of-pocket health care costs

Deloitte Center for Health Solutions, November 17, 2014

Executive summary

Even though more consumers are gaining health insurance coverage, they are by no means insulated from the burden of health care costs. Consumers are paying more of their health plan premium and experiencing higher out-of-pocket (OOP) cost-sharing for all types of health care services. These increases are expected to continue as employers shift to high-deductible offerings and individuals gain coverage through insurance marketplaces (also known as public health insurance exchanges). Moreover, government estimates of health care spending do not take into account discretionary consumer spending on a number of products and services; Deloitte’s Hidden Costs Analysis shows these purchases add considerably to the total.

Increases in consumer OOP spending impact hospitals, life sciences companies, and health plans as well as consumers. In response, hospitals should consider strategies to help patients anticipate and pay their bills. Pharmaceutical companies should consider identifying ways to minimize consumers’ cost-sharing for their products. Finally, health plans should consider developing tools to help consumers understand how to use their coverage and plan for care, including choosing high-value providers.

Implications for consumers

Consumers are finding it increasingly difficult to bear the burden of mounting OOP costs and many are searching for ways to manage the expenditure. For example, in Deloitte’s surveys of U.S. consumers, respondents have shown a willingness to skip care and/or use over-the-counter products to avoid the cost of doctors’ office and hospital visits. Some opt to not fill prescriptions, take less than the prescribed amount, or have trouble getting behavioral health care.

A growing number of individuals are buying health plans that have lower premiums (so are less expensive on a monthly basis) but have high deductibles, without understanding that these plans will not pay for a doctor visit or for prescription drugs before the consumers meet their annual deductible. These choices can result in thousands of dollars of OOP medical expenses each year. The challenges of insurance illiteracy are great: A study by Consumer Reports found that many consumers were not aware of basic insurance concepts. (HHS is running a campaign to help people understand how to use their insurance.) Among potential implications of insurance illiteracy, some consumers in future rounds of marketplace purchases may choose to “buy up” when they learn about their financial exposure under some of the less-expensive plans.

Ideally, consumers seeking to reduce OOP costs will take time to research options and use available tools to select low-cost, high-quality providers in their health plan’s network. OOP costs may even encourage some consumers to take extra steps to stay healthy. But even consumers who are fully committed to healthy living will at some time or another need health care and this may involve high prices. Finally, people facing high cost-sharing may be discouraged from using many of the health services they need, including help managing chronic health conditions, and may not see the value in paying premiums for future coverage.


This report is written for the health care industry. It provides advice on potential strategies to deal with an increasing problem in health care today: the impacts of rising out-of-pocket health care costs. Although Deloitte’s advice is directed more towards the medical/industrial complex that provides health care services, our concern is with what Deloitte calls consumers, though we know them as patients.

Shifting costs of health care to patients’ pockets is not in the interests of the patients. They would be better served by a system that prepays all essential health care services so that they can access care as needed without having to face financial barriers. Other nations do this while spending much less per capita on health care than we do.

So is shifting costs to patients in the best interests of the medical/industrial complex? For the providers of health care services and products – physicians and other health care professionals, hospitals, pharmacists, laboratories, imaging centers, medical equipment suppliers, and others – instead of collecting charges from a single payer, these entities must also collect from individual patients the deductibles, co-payments, coinsurance, out-of-network charges, and uncovered health expenses that the insurers exclude from provider payments. This increases the administrative complexity for the providers and exposes them to losses for charges that prove to be uncollectible. Increases in administrative efforts and exposure to potential losses are not in the interests of the providers. They would be better off providing services within a prepaid system that eliminates patient cost sharing.

If this isn’t working for either the patients or the providers, then who is benefiting? The private insurers, of course. They benefit by selling us more of their primary product: administrative services. They benefit by paying less for health care services and products, since some of the costs are shifted to patients’ pockets. They benefit by increasing the administrative complexity of health care financing thereby making their intermediary role an essential service that insured patients and contracted providers require to negotiate the administrative maze of health care payment. So we need them because they created an administrative nightmare that is so complex that we can’t do without them?

As would be expected, Deloitte advises tinkering to address the problem of digging deep for out-of-pocket spending. Or, failing that, they suggest that patients “take extra steps to stay healthy.” But for patients and for the health care delivery system, the correct solution is obvious. Provide first dollar coverage and pay for care through an administratively efficient system: a single payer national health program.