Justin Im

PHPM310

Assignment 4A

22 March 2018

Cost-Sharing to Incentivize Responsible Behavior

Health insurance companies often use cost-sharing methods to encourage and reward

certain behaviors from their customers, while attempting to discourage and disincentivize other

behaviors that produce unwanted outcomes for the firms. Cost-sharing is a term used to

describe how healthcare costs are split between the insurer and the insuree. The three most

common cost-sharing tools used are deductibles, copayments, and coinsurance.

Deductibles, copayments, and coinsurance all require the insured customer to pay a

portion of the medical costs. The reasoning is that patients are less likely to use unnecessary

health services if it incurs a direct cost for them. Deductibles are the set amount dollars a patient

will pay out-of-pocket before their insurance coverage kicks in. One of the advantages of a plan

with a high deductible is that the monthly premiums are typically lower. The higher out-of-pocket

costs in-case one does get sick is a major disadvantage of high deductibles. Copayments are

fixed fees that a patient agrees to pay every time a certain service is provided. Different services

have different copayments. For example, a patient may have a $5 copayment for generic drugs

and a $15 copayment for a routine checkup.[1] A major advantage of copayments is that

because the fees are fixed, the copayment fees will stay the same regardless of the total costs

paid by the plan provider. A disadvantage of copayments and other cost-sharing methods in

general, is that they may discourage people from seeking necessary services. Coinsurance is

similar to copay, except instead of a fixed fee, the consumer pays a percentage of the bill. One

major drawback is that consumers could incur unexpectedly high costs.

Policy makers and insurance companies have to carefully weigh the pros and cons of

cost-sharing tools in order to find the optimum balance between encouraging the use of
necessary services and discouraging excessive, unnecessary use. In order to make sure that

patients with chronic conditions or low incomes were not harmed, the RAND Health Insurance

Experiment showed that having a plan with no coinsurance was the best option.[2] However, the

experiment also showed that for the average person, coinsurance had no negative impact on

health.[2.1] Therefore, I believe it is best to keep cost-sharing measures incorporated into health

plans. Those with low-incomes who would be adversely affected might find better insurance

options through programs like Medicaid. I don’t think getting rid of cost-sharing plans would

achieve the desired results. While it might discourage a small percentage of people from

seeking much needed medical services, I think the overall rising costs from people using

services unnecessarily will price the lower income customers out of the market via higher

premiums.

Insurance companies offer a variety of plans with different levels of cost-sharing which

provide consumers with many choices. Ultimately, the “best” plan for one individual may not be

ideal for another. I think the different cost-sharing tools can be a great, beneficial feature and

play a vital role in our healthcare system.

 References

1. Joyce GF, Escarce JJ, Solomon MD, Goldman DP. Employer Drug Benefit Plans and

Spending on Prescription Drugs. JAMA. 2002;288(14):1733–1739.

doi:10.1001/jama.288.14.1733

2. Kaiser Family Foundation (2006). The Role of Consumer Copayments for Health Care:

Lessons from the RAND Health Insurance Experiment and Beyond. Washington DC: The Henry

J. Kaiser Family Foundation, pp.1-15.