By Amitabh Chandra, Evan Flack, and Ziad Obermeyer
National Bureau of Economic Research, February 2021
We use the design of Medicare’s prescription drug benefit program to demonstrate three facts about the health consequences of cost-sharing. First, we show that an as-if-random increase of 33.6% in out-of-pocket price (11.0 percentage points (p.p.) change in coinsurance, or $10.40 per drug) causes a 22.6% drop in total drug consumption ($61.20), and a 32.7% increase in monthly mortality (0.048 p.p.). Second, we trace this mortality effect to cutbacks in life-saving medicines like statins and antihypertensives, for which clinical trials show large mortality benefits. We find no indication that these reductions in demand affect only ‘low-value’ drugs; on the contrary, those at the highest risk of heart attack and stroke, who would benefit the most from statins and antihypertensives, cut back more on these drugs than lower risk patients. Similar patterns exist for other drug–disease pairs, and irrespective of socioeconomic circumstance. Finally, we document that when faced with complex, high-dimensional choice problems, patients respond in simple, perverse ways. Specifically, price increases cause 18.0% more patients (2.8 p.p.) to fill no drugs, regardless of how many drugs they had been on previously, or their health risks. This decision mechanically results in larger absolute reductions in utilization for those on many drugs. We conclude that cost-sharing schemes should be evaluated based on their overall impact on welfare, which can be very different from the price elasticity of demand.
From the Conclusions
We find that small increases in cost cause patients to cut back on drugs with large benefits, ultimately causing their death. Cutbacks are widespread, but most striking are those seen in patients with the greatest treatable health risks, in whom they are likely to be particularly destructive. It is difficult to affirmatively establish that we have identified behavioral hazard, in the precise sense of a systematic failure to balance the cost with the benefit of care. But we emphasize that the size of the mortality increase cannot be reconciled with any current understanding of the value patients place on life.
We emphasize that our results do not capture the total impact of cost-sharing on health. We estimate only mortality, not morbidity, and only how December price changes affect 65-year-olds’ December mortality: a very specific setting, and a very short time period. But patients face cost- sharing throughout the year, and the life-span. If they respond with cutbacks similar to the ones we observe here, they would experience similar increases in mortality in many other settings and over longer time periods. While these effects are as-yet undetected, there is no reason to think that they are not present and equally large.
One conclusion remains clear: patient cost-sharing introduces large and deadly distortions into the cost-benefit calculus. Payers should evaluate the merits of these policies in light of their impact on health, not just on health care costs.
By Don McCanne, M.D.
The health policy literature is replete with studies that confirm that cost-sharing, including deductibles, copayments, and coinsurance, can cause individuals to forgo health care that they should have. This study expands on that concept to confirm that this “behavioral hazard” can result in death.
What is the purpose of cost-sharing? It is simply to save money by reducing the amount of health care that a person receives. Ideally it would cause patients to forgo only that care that is not beneficial, but it doesn’t work that way. The financial barrier of cost-sharing also causes patients to forgo beneficial care, and, as this study shows, they will cut back on life-saving medicines like statins and antihypertensives, with resultant premature death. That cries out for a change in policy.
We should eliminate cost-sharing in order to eliminate not only lethality but also other consequences such as potential financial hardship. We should remove all barriers to beneficial services, even though they may be of low value, as long as they have some potential value. The patients can always decline care they do not want. If services have no value, we simply do not include them under covered benefits. At the same time, prices should be government-administered so that we, collectively, pay only legitimate costs plus fair margins.
Cost-sharing is a business tool. What we want are patient care tools. When we finally enact and implement a single payer system of an improved Medicare for All, let’s be sure that it is the patient care community that dictates policy priorities, as long as they are on behalf of the patients. Good business also is fine if patient care is always placed first. Cost-sharing places the businessman first and not the patient, so that has to be changed. Death should not be an unintended consequence of health policy.
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