The Role of Consumer Copayments for Health Care: Lessons from the RAND Health Insurance Experiment and Beyond
By Jonathan Gruber, Ph.DKaiser
Family Foundation
October 2006
Conclusion
The RAND HIE was one of the most important and influential social experiments in our nation’s history. By tackling a contentious yet central policy issue, the HIE provided a valuable set of evidence that delivers clear lessons for health insurance design. The right way to design health insurance has three features: co-insurance for the typical patient; an income-related out-of-pocket limit; and evidence-based design of co-insurance that targets co-insurance to places where care is least effective. In practice, each of these raises administrative issues that get more daunting as one moves through the list. But in principle, at least, a clear reading of this literature gives us a natural starting point for designing appropriate health insurance benefits.
http://www.kff.org/insurance/upload/7566.pdf
Comment:
By Don McCanne, MD
Jonathan Gruber provides an excellent analysis of the RAND HIE and of more recent studies on the impact of co-insurance. His conclusions are warranted based on a sterile, broad overview of the current knowledge on the topic, but only if you accept the principle that cost sharing should be an essential component of health care cost containment simply because it has been proven to reduce spending. Dr. Gruber’s recommendations demonstrate that he is not insensitive to the potential negative impact, especially on lower-income individuals with significant health care needs, but we should question what he recommends to make cost sharing work.
1. “co-insurance for the typical patient:” The “typical patient” is the average, healthy individual. It is not the patient with significant health care needs, nor the patient who will develop major medical problems in the future. Establishing policies that reduce health care spending amongst those who are not spending very much is of little help in controlling the four-fifths of our spending on those with greater health care needs.
2. “an income-related out-of-pocket limit:” Linking means testing to access of medical services creates an administrative nightmare. This concept acknowledges that low-income individuals cannot be expected to pay large amounts out of pocket, but higher-income individuals can. But rather than creating this complex system of means testing, progressive funding can be much more easily and equitably established on the financing side through the tax system. The relatively small increase in utilization by higher income individuals can be easily off-set by appropriate minor adjustments in tax policies, though the amount would be almost negligible.
3. “evidence-based design of co-insurance that targets co-insurance to places where care is least effective:” This one is a double administrative nightmare. Imagine trying to identify services that are of lower value and then assigning a higher co-insurance rate based on the effectiveness of the service. Overuse of non-beneficial services must be addressed, but it is not realistic to place the patient in charge of that decision based on a complex system of sliding-scale co-insurance. Reducing such wasteful spending would be much more easily accomplished by establishing a national health insurance monopsony which would be more capable and effective in removing worthless services from coverage.
In his analysis, Dr. Gruber fails to acknowledge the fundamental flaw in the way that the RAND HIE has been applied to health policy. It only has intrinsic validity for a healthy sector of our population for a healthy period in their lives. It does not have extrinsic validity for our entire population from birth to death, with their full basket of medical problems.
The RAND HIE should no longer be used as a reason for keeping the private insurance industry in charge. What we need is national health insurance. Other nations spending far less than us have not had to use co-insurance to control costs.