Today's Managing Health Care Costs Number Is $26 Billion
The Health Care Cost Institute, which has complete claims data files from United Health Care, Aetna, Kaiser Permanente and Humana, released an analysis of a nationally representative sample of those with employer sponsored health care insurance –and found that the opportunities for these insured members to lower costs through “shopping” is only modest. This is consistent with recent reports showing that high deductible health plans did not induce effective shopping behavior amongst beneficiaries.
From the authors:
We come to the conclusion that the potential gains from the consumer price shopping aspect of price transparency efforts are modest
HCCI calculated that the total amount of the health care dollar that was potentially amenable to shopping was high – 43% of total medical claims. However, things went down from there.
· The most shoppable services, knee and hip replacements, represent only 1.3% of total costs – so even taking a huge chunk out of that cost through shopping wouldn’t have much impact on total medical spending.
· US consumers spent $38 billion out of pocket on ‘shoppable services.’ Only 12% of out of pocket dollars were spent in coinsurance on shoppable services – so the patients who go through the trouble of shopping will on average save little
· Deductibles represent about half of out of pocket costs –but these are slanted toward low cost outpatient procedures; the researchers estimate that the amount of the deductible that could be impacted by shopping is about 20% of total out of pocket costs (41% of 50%). In an optimistic scenario where shopping decreases costs by 25%, shoppers will lower their out of pocket costs by only 8% (25% of (12% [coinsurance]+20% [deductible]) .
· Many out of pocket dollars that are “saved” in the deductible will be applied to other services, so will not net the patient as consumer large cost savings.
It gets still worse. The most shoppable medical services, those which are high cost and elective, have much lower variation in cost than less shoppable services - so the likelihood of finding exceptionally good deals is lower. HCCI has calculated “coefficient of variation” (standard deviation over mean) so that the researchers can compare services with wildly different prices – in the chart below high coefficient of variation means that there is more difference between lower and higher priced providers. Sure – there is a huge coefficient of variation for blood drawing. But the friction involved in shopping is pretty high for the cost saving that could be gained for such a low cost item.
Coefficient of variation also is variable in different geographic regions, and many services can realistically only be shopped in a local area . The states with the highest amount of variation were those with large cities and substantial competition. Rural areas had low coefficiencies of variation, and thus little opportunity for shopping to achieve cost savings.
I calculate that the total out of pocket deductible and coinsurance that employees have “at risk” for shoppable services is about $26 billion. That’s a lot of money – but it’s hard to see this type of patient risk driving huge changes in our $3 trillion health care economy. It’s easy to see how this risk makes navigation much more challenging for those with significant illnesses.
Putting consumer “skin in the game” to encourage wise patient use of resources (and shopping) was one of the core reasons put forward to support high deductible health plans. These plans clearly lower costs through lowering overall utilization, and it doesn’t appear that this decrease in utilization leads to higher mortality. We now have evidence that the economic incentive in a high deductible health plan is not likely to be high enough to encourage patients to shop for their care, and the likelihood that such shopping will lower cost substantially is only modest.
