Scaling and Splitting: New Approaches to Health Insurance: How Can We Cut Health Care Costs While Expanding Access to Care?

By Robertson, Christopher T.; Joiner, Keith A. | Regulation, Summer 2015 | Go to article overview

Scaling and Splitting: New Approaches to Health Insurance: How Can We Cut Health Care Costs While Expanding Access to Care?


Robertson, Christopher T., Joiner, Keith A., Regulation


In the United States, cost-sharing in health insurance coverage has become the primary mechanism for reducing insurance expenditures and, by extension, maintaining affordable coverage. Cost-sharing involves patients making various out-of-pocket (OOP) payments for their own health care aside from whatever the insurer pays.

As a patient's spending on health care grows month by month in any given year of coverage, she moves through three different "zones" of insurance, from no insurance, to partial insurance, and finally to full insurance. Looking at these zones individually:

Zone I--No Insurance: An annual deductible gives the patient complete responsibility for the first health expenditures in a year. In other words, the patient has 100 percent "skin in the game" for those expenditures. In common plans, the average annual deductible is less than $1,000.

About one-quarter of American workers are in "high-deductible health plans with a savings option," meaning that the insurance is paired with a tax-advantaged savings plan for medical expenditures. The average deductible for these plans is a bit over $2,000, though federal law allows them to be as high as $12,000 for families. High-deductible plans, as a percentage of plans offered and of employees enrolled, have increased more than five-fold over the last decade. Many employers are eliminating all other options for their employees.

Zone 2--Some Insurance: In this zone, patients share the burden of health care consumption through copayments, coinsurance, or reference pricing. A copayment is a flat fee paid at a doctor's office, hospital, or pharmacy, while coinsurance is a percentage (typically about 18 percent) of the cost of the service or drug. Under a "reference price," an insurer pays a fixed amount for a service and the beneficiary pays all charges above that amount.

These forms of cost-sharing are intended to decrease "moral hazard," in which patients consume more health care than is efficient because they bear little of the cost. But these forms of coverage can lead to "behavioral hazard," in which services or drugs of clear medical benefit are under-utilized because patients shy away from the co-pay. Most consumers do not (or are not able to) distinguish between care that is considered highly beneficial and care that is of minimal benefit or even potentially harmful.

Zone 3--Full Insurance: Finally, there is a zone in which patients have no "skin in the game" at all and insurance covers the full cost of care. Most individual workers have cost-sharing burdens capped at some amount less than $3,000 per year (or less than $5,500 for family-coverage), after which all expenses become the responsibility of the insurer. Although most plans included such a cap already, it is now required by the 2010 Patient Protection and Affordable Care Act (ACA).

Imagine an insured, Ms. Mildred Median, whose plan has a $ 1,000 deductible, an 18 percent coinsurance burden, and a $3,000 cost-sharing maximum. Suppose that this year, she will spend tens of thousands of dollars on a heart stent, chemotherapy drug, or other high-cost care. After spending her $1,000 deductible, she will be exposed to up to $2,000 more in costs ($3,000 cap minus the $1,000 deductible). Given her 18 percent coinsurance rate, that $2,000 will be consumed after the next $11,111 in health care expenses. Thus, Ms. Median has reached Zone 3, where she has full insurance with no more skin in the game, after consuming $12,111 in health expenses, $3,000 of which she paid out of pocket.

For Ms. Median, the cap is a good thing. If she also earns a median family income of about $51,000, her health care expenses will have consumed 6 percent of her pre-tax income. Depending on her other obligations and the amount she has put into savings, she may not have been able to bear more risk. In this sense, the Zone 3 cap is doing exactly what it was designed to do. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Scaling and Splitting: New Approaches to Health Insurance: How Can We Cut Health Care Costs While Expanding Access to Care?
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.