Study Shows Impact of Increased Patient Cost Sharing

Seriously Ill and Low-Income People Hit Hardest by Higher Out-of-Pocket Health Costs

News Release
Dec. 3, 2003

Alwyn Cassil: (202) 264-3484

ASHINGTON, D.C.—As employers restructure health benefits to increase patients’ out-of-pocket costs through higher deductibles, copayments and coinsurance, seriously ill and low-income workers face greater financial burdens, according to a national study released today by the Center for Studying Health System Change (HSC).

"By giving patients a greater financial stake in their care, employers are trying to encourage workers to economize when using health care services," said Paul B. Ginsburg, Ph.D., president of HSC, a nonpartisan policy research organization funded exclusively by The Robert Wood Johnson Foundation.

"As out-of-pocket costs increase, however, both the financial and medical consequences for seriously ill and low-income people increase, especially since most cost-sharing requirements don’t differentiate between essential care and highly discretionary care," Ginsburg said.

The study’s findings are detailed in a new HSC Issue Brief—Patient Cost Sharing: How Much is Too Much?—was released today at an HSC conference: Patient Cost Sharing: Promises and Pitfalls. A Webcast of the conference will be available shortly at

To assess the potential financial impact of increased patient cost sharing, HSC used actuarial models to estimate patients’ expected average annual out-of-pocket costs under a range of benefit structures for single coverage. The actuarial models were based on data from the 1997 Medical Expenditure Panel Survey (MEPS) and adjusted to reflect 2003 health care cost and utilization increases.

The six models ranged from a baseline benefit structure with a zero deductible and fixed $10 physician visit copayments to a $2,500 deductible and 30 percent coinsurance—where patients pay a percentage of the total bill—for in-network care and 50 percent coinsurance for out-of-network care. Since many patients’ total out-of pocket costs are capped by maximum out-of-pocket limits, the out-of-pocket maximum was set at $1,500 more than the deductible for each benefit scenario.

"Increased patient cost sharing raised out-of-pocket costs much more for people with chronic conditions, those in poor health and people with at least one hospitalization in the previous year," said HSC Senior Health Researcher Sally Trude, Ph.D., the study’s author.

For example, under a benefit structure with a zero deductible and copayments of $20 for physician office visits, $150 for emergency department visits and $250 per day for inpatient care, people in poor health would pay an average $862 out of pocket annually, while people in poor health with a $2,500 deductible would pay $2,942 on average out of pocket.

Likewise, as health benefit structures become less generous, lower-income people face greater financial consequences. For example, 1 percent of people with incomes between 125 percent and 200 percent of the 2003 federal poverty level—or $11,225 to $17,960 for a single person—have out-of-pocket costs exceeding 10 percent of income under the zero deductible and $10 physician visit copayment benefit structure, compared with 23 percent of low-income people with a $2,500 deductible and coinsurance.

Along with examining how different health benefit structures affect different kinds of patients, the study examines possible market responses to refine cost sharing and encourage patients to economize on discretionary care. One possible response would be for employers and health plans to require higher cost sharing for more discretionary or less clinically valuable services. Another response could involve waiving cost sharing based on patient diagnosis. For example, to encourage people with diabetes to seek eye and foot exams, cost sharing could be waived for these clinically valuable services.

"If employers want to avoid creating financial hardships for seriously ill and low-income workers, they will need more refined tools that encourage cost-effective care," Trude said. "Practitioner involvement also will be important."

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The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely insights on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded exclusively by The Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.