NCPA - National Center for Policy Analysis

GIVING CHOICE, CONTROLLING COST

November 3, 2006

A new report provides confirmation of what proponents of consumer-directed health care have long asserted -- putting patients more in touch with the cost of care is essential to controlling those costs, according to Devon Herrick, a senior fellow with the National Center for Policy Analysis (NCPA).

The report, by Massachusetts Institute of Technology's Jon Gruber, was a retrospective analysis of the landmark RAND Health Insurance Experiment (HIE), originally conducted in the 1970s.  Gruber found people cut back on their use of health care the more they have to share the costs of that care.

According to Gruber:

  • When cost-sharing moved from zero (i.e. free care) to 95 percent, total health care spending fell about 30 percent.
  • More telling however, outpatient spending fell 40 percent while face-to-face doctor visits fell by 60 percent.

"The less people are insulated from the costs of health care, they less likely they are to run to the doctor every time they have the sniffles," said Herrick. "When patients are responsible for paying even a small portion of their medical bills, they begin to change their spending behavior."

Public health advocates fret that patients cut back on care, worrying that prevention now will save higher expenditures in the future.  Yet, taking the choice away from the patients and putting everyone on free care doesn't substantially improve the overall health of the average person.

"As health care consumes an increasingly large chunk of Americans' budgets, someone will have to decide between medical care and other uses for our money," said Herrick.

"When given a choice, individuals choose the option they feel is best for them.  While their choice might not please public health advocates, cutting back on medical usage appears to have little detrimental effect on their health."

Source: "Cost Sharing Helps Control Health Care Costs," National Center for Policy Analysis, November 2, 2006.

 

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