By: Daniel Aaron
Just last month, Professor Christopher T. Robertson, at the University of Arizona College of Law, released his new book about health care, entitled Exposed: Why Our Health Insurance Is Incomplete and What Can Be Done About It. This book review will offer an analytical discussion of “cost exposure,” the main subject of his book.
What is cost exposure in health care?
Cost exposure is payments people make related to their medical care. There are many ways patients pay – here are a few common ones.
- Deductible – Patient is responsible for the first, say, $5,000 of their medical care; after this point, the health insurance kicks in. Resets each year.
- Copay – Patient pays a specific amount, say $25, when having an episode of care.
- Coinsurance – Patient pays a specified percentage, say 20%, of care.
These forms of cost exposure greatly complexify patient considerations on whether to obtain care. Patients who want to see a doctor must consider not just medical need, but the predicted cost. One story of cost exposure involved a woman who recently had her leg trapped in the Boston subway; rather than pleading for help, she insisted: Don’t call an ambulance. She knew that her cost exposure to an ambulance ride may have cost her thousands of dollars. Despite this story, economists and policymakers have offered reasons for cost exposure. As seen in figure 1.1, cost exposure continues to increase in the United States.
The effects of cost exposure on health care
Cost exposure has two functions, according to Prof. Robertson.
First, consider that insurance is a pool of money that pays for individuals’ health care. Cost exposure, then, puts costs back on the individual. It serves a distributional function.
Second, cost exposure affects the health care people seek. When you know you will face costs to see the doctor, you are less likely to obtain care. Thus, cost exposure serves a behavioral function.
Cost exposure thus is a double-win for insurance groups, who save money by re-imposing costs and reducing medical care.
Why do we have cost exposure?
Professor Robertson notes that cost exposure is frequently justified by “moral hazard.” Moral hazard describes how money is easier to spend out of public pockets than out of one’s own. When you have health insurance, without any cost exposure, you can spend the pool of money with no cost to yourself. This, in theory, contributes to U.S. health care waste. So, the theory goes, by making patients pay money to see the doctor, they will have some “skin in the game” and will reduce their use of unnecessary care.
Prof. Robertson doesn’t gloss over this argument; instead, he spends a large chunk of his book analyzing whether moral hazard justifies cost exposure in health care. He lays out a nimble critique of the evidence that was used to connect moral hazard to cost exposure, spending quite some time on the famous RAND Health Insurance Experiment of the 1970s, which randomly assigned thousands of Americans into either “free care” or to care with variable levels of cost exposure. The study found that a large but bearable deductible caused a 50% drop in health care costs for the typical person, without a significant impact on health outcome. In other words, people selectively dropped low-value care, and retained important health care. Despite some doubt that people could possess the expertise to differentiate between high- and low-value care, the study appears to show that patients did just that.
However, Prof. Robertson interprets the study differently: more than a third (37%) of the highest cost-exposure arm dropped out of the study, compared with 12% of the free-care group. Most likely, the people who could not afford the cost exposure due to large medical bills or low socioeconomic status dropped out. It’s great the study saved money through cost exposure, but it did so likely by causing the most vulnerable and sick people to drop out.
Problems with cost exposure
Cost exposure is predicated on people behaving as “rational actors,” who can measure how valuable each episode of care is, and selectively decrease low-value care. High-value care will continue to be worth it for the cost. However, Prof. Robertson identifies numerous problems with this ideal, rationalized view of cost exposure.
Cost exposure hurts poor people’s access to health care
According to the so-called access theory, cost exposure reduces access of poorer people to important health care. A poor person with high blood pressure is less likely to fill the blood pressure prescription if there is a $20 copay, putting them at long-term risk for heart disease, kidney disease, and stroke. Notably, American health care does not tailor cost exposure to ability to pay, so these payments hit much harder for poorer people. In fact, they sometimes increase health care costs in the long-term, as shown by a 2015 study finding that patients with multiple chronic conditions who were subject to cost exposure for medications, while spending less money in the short-term, eventually increased total health care costs by seeking care for complications of their diseases.
Cost exposure causes intense stress, financial and otherwise
Prof. Robertson marshals an array of evidence showing that cost exposure causes stress. His arguments have some likeness to those of Senators Elizabeth Warren and Bernie Sanders, who frequently discuss how health care throws families into financial ruin. He notes the alarming frequency with which Americans delay or forego care due to cost or inability to pay—a phenomenon almost never seen in the nearby U.K., which has a national health care program.
Beyond financial stress, medical debt greatly increases emotional stress in a way that has been shown to be medically harmful. Medical debt, controlling for other factors, is associated with higher perceived stress and depression, lower self-reported health, and higher blood pressure. Other studies have found associations with obesity, substance use, and even suicide. Prof. Robertson hits a dark note when he points out that death has become a form of bankruptcy, wiping away medical debt and sending loved ones’ life insurance and retirement funds that are protected from creditors.
Cost exposure is unpleasant and commodifying
A frequent refrain throughout the book is that health care is more than finance. People want their diseases to be treated. They value their health. Nobody wants to have to consider how much health care costs when receiving care. We also pay monthly health care premiums, so it is not immediately clear that there should be additional payments on delivery of care.
More than unpleasant, cost exposure commodifies the non-monetary. Fundamentally, there are some things that are outside the world of money. Prof. Robertson cites the work of Glenn Cohen, who argues that there are certain things that cannot be bought or sold, such as children. Health, like children, is fundamental, and while money is inevitably involved in high-level policy, it should not be incorporated into day-to-day decisions, such as with people make quid pro quo decisions of buying their child’s life through the purchase of health care.
Cost exposure fails to account for actual human psychology
Humans are not always rational. They are subject to numerous biases and limited knowledge—a proposition Prof. Robertson supports, as usual, with a tall wave of evidence. We discount the importance of our future selves in favor of the present. We do not understand which medical treatments are most effective. We over-rely on our doctors’ advice. We are sick, which causes us to make worse decisions (if they can even be called decisions at all). We rarely know what anything costs in the complex world of medicine. And, in one of the most innovative arguments of the entire book, medicine has been somewhat corrupted by financial interests that have denigrated the standards of medical evidence and caused even doctors to be misled about what treatments are appropriate. A quick look at the opioid epidemic, in which pharmaceutical marketing changed doctors’ standard of care to encourage the prescribing of more and stronger opioids, emphasizes the difficulty of identifying high-value care. Amidst all these barriers, Prof. Robertson argues that patients with no medical training cannot differentiate between high-value and low-value care. Exposed to cost, they are prone to indiscriminately reduce care.
