Americans Reassess Health Care Choice-Cost Trade-offs

More Willing to Limit Choice of Physicians and Hospitals in Return for Lower Out-of-Pocket Costs

News Release
March 24, 2005

FURTHER INFORMATION, CONTACT:
Alwyn Cassil (202) 264-3484 or acassil@hschange.org

WASHINGTON, DC—More Americans are willing to limit their choice of physicians and hospitals to save on out-of-pocket medical costs, according to a new national study by the Center for Studying Health System Change (HSC).

Between 2001 and 2003, the proportion of working-age Americans with employer health coverage willing to trade broad choice of providers for lower out-of-pocket costs increased from 55 percent to 59 percent—after the rate had been stable since 1997, the study found.

"A likely explanation for the change in consumer attitudes is that the growing burden of out-of-pocket medical costs is prompting a reassessment of the choice-cost trade-off," said Paul B. Ginsburg, Ph.D., president of HSC, a nonpartisan policy research organization funded principally by The Robert Wood Johnson Foundation.

Consumer demand for broader choice of health care providers was a driving force behind the managed care backlash of the mid-1990s. Under pressure from employers and consumers, health plans broadened provider networks and eased other care restrictions, but these changes were accompanied by rapidly rising health insurance premiums. In response, many employers in 2002 began increasing patient cost sharing through higher deductibles, copayments and coinsurance, where patients pay a percentage of the bill rather than a fixed-dollar amount.

The study’s findings are based on HSC’s Community Tracking Study Household Survey, a nationally representative survey that asked people whether they were strongly unwilling, somewhat unwilling, somewhat willing or strongly willing to accept a limited choice of physicians and hospitals to save money on out-of-pocket costs for health care. The definition of out-of-pocket costs excludes individuals’ contributions toward health insurance premiums. In 2003, the survey included 20,500 adults aged 18-64 with employer-sponsored insurance, while the 2001 survey included 28,000 working-age adults with employer coverage.

"Americans are deeply divided over the trade-off between unfettered choice of physicians and hospitals and lowering their out-of-pocket health costs," said Ha T. Tu, M.P.A., an HSC health researcher and study author. "Substantial minorities feel intensely about this hot-button issue: 20 percent were strongly willing to limit provider choice, while 21 percent were strongly unwilling."

The study’s findings are detailed in a new HSC Issue Brief—More Americans Willing to Limit Physician-Hospital Choice for Lower Medical Costs—available here. Other key findings include:

• Low-income consumers—defined as those with family incomes below 200 percent of the federal poverty level, or $36,800 for a family of four in 2003—were most willing to give up provider choice in return for lower costs. In both 2001 and 2003, about two-thirds of low-income people were willing to limit provider choice, while the proportion of people with incomes above 400 percent of poverty willing to limit choice increased from 50 percent to 54 percent.
• Compared with other adults, people with chronic conditions, such as diabetes, asthma or depression, were only slightly less willing to limit their choice of physicians and hospitals to save on costs. Among chronically ill working-age adults with employer coverage, 56 percent said they were willing to accept limited choice of providers, only slightly lower than the 59 percent of all working-age adults with employer coverage willing to limit choice.
• The proportion of chronically ill working-age adults with employer coverage willing to trade choice for lower costs rose substantially from 51 percent in 2001 to 56 percent in 2003.
• At each income level, willingness by chronically ill people to give up choice to gain cost savings has increased significantly: 5 to 6 percentage points—a substantial increase for a two-year period. These increases are larger than those reported by people without chronic conditions, and one likely explanation is that the increase in patient cost sharing has fallen most heavily on people with chronic conditions, making them more willing to sacrifice choice to save on costs.
• Within the low-income group, people with chronic conditions are now at least as likely as those without chronic conditions to be willing to give up choice—about two-thirds of both groups.

Given the diversity of choice-cost opinions, offering a variety of insurance products representing different choice-cost options would satisfy the largest number of consumers, according to the study. Yet, in recent years, many employers have reduced the range of insurance options offered to their workers. At the same time, many employers have chosen to adopt broader provider networks and increase patient cost sharing, leaving those who are willing to trade choice for lower costs with fewer opportunities to do so.

Whether employers provide such options in the future likely will depend on whether they perceive enough demand for those products from their highly paid workers—often the portion of their workforce for which recruitment and retention concerns are greatest.

"If employers don’t see the need to provide lower-cost options to satisfy high-earning workers, then it is unlikely that these options will be offered broadly," Tu said. "Increasingly, consumers—especially low-income people—willing to limit provider choice for lower costs may find no way of satisfying those preferences, resulting in lower take-up of employer-sponsored insurance and an increase in uninsured Americans."

The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research 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 principally by The Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.