What can we learn from the US on healthcare cost sharing?

As healthcare spending escalates year on year across the developed world, expanding cost sharing is now on the agenda for many OECD countries. However out of pocket payments are controversial, and not just in England. Recent research from America, where insurance premiums have more than doubled in a decade, offers insights into the opportunities and limitations for cost sharing.

While the majority of health expenditure in America is covered by employers’ health insurance or government programmes such as Medicare, the use of direct individual contribution is on the increase. To stem growing costs health plans are using a variety of cost sharing mechanisms to curb demand and limit unwarranted healthcare consumption. One option is co-insurance, where patients meet a percentage of the total healthcare bill; another is “deductibles” where patients cover the initial costs. More traditional co-payment is now also more common, with patients paying $15-20 to visit a GP. In nearly all cases health plans cap total cost sharing.

Recent American research has built on the findings of past studies such as the RAND health insurance experiment of the 1970s. The insights are instructive. Patients are less likely to visit a doctor or hospital when faced with larger cost sharing, but would follow medical advice over a course of treatment regardless of cost. While poorer populations are more susceptible to cost sharing, more vulnerable people are often exempted from out of pocket payments. Well designed cost sharing mechanisms can also be used to deter patients from using less cost effective services, such as unnecessary emergency admissions. Crucially, there is no clear sign that cost sharing negatively effects health outcomes. The key lesson from the growing body of research has been that the design of cost sharing is critical to success.

As well as the additional revenues and reductions in unnecessary health spending, cost sharing has started to drive efficiency and real innovation among providers. Greater use of out of pocket expenditure has encouraged the development of highly efficient and focused providers of diagnostic services and more responsive primary care services. In addition, when health plans use cost sharing to encourage patients to use less expensive primary care and specialist clinics for diagnostics, general hospitals must become efficient to cover the loss of these profitable services.

Patients who pay also have “skin in the game”. However according to the OECD UK residents benefit from an “especially high level of financial protection from the consequences of illness”. England makes the smallest private contribution to healthcare expenditure of major countries. User charges currently account for only 1.3 per cent of NHS revenues.

Cost sharing is now a key element of world leading health systems such as France and the Netherlands. However the role of out of pocket payments in the NHS is still a taboo. The Dilnot Commission on long term care, with its proposal to cap private contribution at £25,000-50,000, present the opportunity for a honest debate on how all health and social care needs are met and the role of private contribution.