NCPA - National Center for Policy Analysis

Employers and Consumer Choice

June 17, 2002

Many patients are divorced from the cost of the services they consume because employers or government pay the bills. Costs have not risen much for care consumers directly pay for, because consumers are careful in how they spend their money.

  • Patients pay directly for only about 15 percent of total health care services, down from 56 percent in 1960.
  • Eighty-five percent of health care is now paid for by third parties. (See the Figure.)
  • Consumers' expenditures are at the margins of the health care system -- alternative medicine, over-the-counter medications, vision and dental care and cosmetic surgery.

Employers that provide health benefits can take many actions to make consumers aware of cost and empower them to make decisions. These steps include providing more information, giving employees cash for premiums if they can obtain better coverage elsewhere, and providing a fixed contribution, rather than 100 percent coverage or a percentage of the premium.

Another step is to eliminate community rating -- in which each worker is charged the same premium regardless of age or health status -- to encourage young, healthier workers not to decline coverage, thus lowering average costs for the whole group.

Increase direct pay, enabling workers to pay directly for services; this should help instill cost sensitivity and lower administrative costs. Direct pay programs could include Medical Savings Accounts (MSAs) for small employers, Personal Health Accounts (PHAs) for larger employers or shared-deductible programs for any employer.

Source: Greg Scandlen (NCPA senior fellow in health policy), "Increasing Consumer Choice in Health Care: Five Steps Employers Can Take Now," Brief Analysis No. 398, June 17, 2002, National Center for Policy Analysis.

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