Do Co-Pays Work?

February 17, 2021

Health Economics is an entire field of study that seeks to understand drivers of human behavior, and realign incentives to get the best outcome regarding health care. One common area for discussion is the best way to structure patient expenses to utilize high-value care when necessary and only when necessary. The idea often proposed is that if patients have more “skin in the game” in terms of cost, they can make more cost-efficient choices. However, applying normal microeconomic principles to healthcare is wrong for many reasons.

Imagine, for example, that you are in the market for a new toaster oven. You might go to stores and pick up different toasters, read reviews, consider the market (Costco, for example, carefully curates its goods) and ask friends and family for their input. When you need an emergency appendectomy, you cannot compare doctors, institutions or prices. And even in the cases where you can choose your surgeon, for example, that does not mean that you can choose your anesthesiologist or other goods and services for which you are charged. Additionally, numerous studies show that the same procedure can range thousands of dollars in cost at the same institution; between hospitals, the variance is also huge.

Over time, the field of data showing that patient co-pays do not help patients make better choices is growing; rather, co-pays discourage patients from getting needed care. Of course, co-pays hit those who can least afford them the hardest. The data show that there is a mortality effect from cost sharing - that co-pays, deductibles and other forms of cost-sharing affect not only health, but life.

The idea of ensuring that patients have some financial consequence for using health care is so that they don’t over-use it. But there are no data showing that American do this - in fact, the data show that Americans see a doctor less often than people in countries with socialized medicine do, and the poor spend less on healthcare than the rich, despite needing more care. Out-of-pocket expenses for health care are clearly effective in accelerating inequality in the United States. Health expenses are one of the top reasons people declare bankruptcy; many recent policy proposals address health care expenses.

Congress, state legislatures and insurers will continue to address the issue of health care costs - whether the cost of drugs, what services are covered and what reimbursement is for certain procedures.