Uwe Reinhardt on Cost-sharing

In an article in JAMA (The Journal of the American Medical Association), Uwe Reinhardt writes about the improbability of “more skin in the game” as a solution to our health care spending woes. Increasing “cost-sharing” or creating “more skin in the game” are different ways to say that patients can/will/should pay more when they go to the doctor or hospital. It means that patients bear a higher share of medical costs, through higher deductibles, higher co-pays, higher so-insurance, and the like. And, it’s often argued that patients with “more skin in the game” will spend their health dollars more wisely. This was the rationale behind the excise tax on high-priced health insurance plans, a tax to not only raise revenue to pay for health reform but also as a way to thin out health plans, making patients pay more for care.

Reinhardt suggests that inducing patients to shop around for cost-effective health care is “about as sensible as blindfolding shoppers entering a department store in the hope that inside they can and will then shop smartly for the merchandise they seek.” The problem, he argues, is that health care has been historically “delivered behind the secure walls of a fortress that kept information on the prices charged for health care and the quality of that care opaque from public view.”

This is one of the reasons why I (in a far less humorous fashion) have argued that increasing health care cost sharing, whether in the form of premium support in Medicare or the thinning out of plans as a result of limiting the tax exclusion, may do little to rein in health care costs and will have the unfortunate downside of simultaneously burdening the patients who need care the most. I wrote earlier this year, “prices of health care services faced by consumers bear very little relation to providers’ cost to supply these services. Hence, these prices provide little to no information for consumers looking to judge the relative efficacy of various health care interventions.” I’m happy that the lack of price transparency is getting the attention it deserves.

Reinhardt makes the additional point that those providers clamoring for little government intervention in the “free” market for health care may be just the thing that breaks down the barriers to true price competition by increasing transparency in prices and costs. On that margin, perhaps, effective health policy can concentrate on lowering costs, rather than on the backs of the most vulnerable.