The out-of-pocket costs associated with health coverage through a publicly financed health care program will have implications that reach far beyond people’s wallets.
Health insurance shields people from paying for expensive treatments and services but also can make it difficult for the public to make informed decisions about the cost of care.
When costs are shared by individuals and insurers the price tag can influence patient behavior and have an impact on overall health care spending as well as health outcomes for patients.
Cost sharing typically takes the form of coinsurance, the percentage of a service paid for by a health plan; copayments, a flat fee for health goods or services; and deductibles, a dollar amount one pays before insurance kicks in.
Cost sharing lowers spending on services, but can also have unintended clinical side effects, according to Ellen Meara, an economist and professor at the Dartmouth Institute for Health Policy and Clinical Practice.
For instance, a health plan with high copayments for prescription drugs is likely to reduce spending on pharmacy benefits. But that’s often because patients don’t buy the medication they need. The result? Expensive hospital visits that increase overall health care costs.
“What’s important from a policy perspective is that cost sharing leads to reduced usage of all services, not just those with dubious value, but also services that are proven to increase health,” Meara said.
The impact of cost sharing is acknowledged in the Affordable Care Act as well as Act 48, Vermont’s health reform law, which sets the state on a path to a first-in-the-nation universal health care program.
Insurers offer high-deductible plans to discourage overuse, but making individuals liable for the first $5,000 worth of care is a deterrent that can discourage people from seeking important treatment.
The Affordable Care Act requires certain preventive services to be excluded from deductibles in the growing number of high-deductible plans offered through the exchanges and on the wider individual market.
Vermont has transitioned its entire individual market to Vermont Health Connect, the state-run insurance system.
In designing Green Mountain Care, Act 48 directs the Green Mountain Care Board to consider waiving cost sharing for evidence-based clinical practices, those known to improve people’s health.
This is known as value-based insurance design, Meara said. Large self-insured companies have experimented with value-based insurance to see if it would reduce costs and improve the health of their employees, she said.
One way they’ve tried to do that is eliminating copayments on prescription drugs for employees with chronic conditions, such as hypertension, diabetes or asthma, with the hope that the patient will adhere to drug regimens and reduce the likelihood of hospital visits.
What is also clear about cost sharing is that its potential negative impacts, such as avoiding important treatments because they are, or are perceived to be, cost prohibitive, disproportionately affect vulnerable groups, such as people with low-income or poor health. These populations often intersect, Meara said.
That is why the platinum, gold, silver and bronze plans offered through the exchanges created by the Affordable Care Act have graduated cost sharing subsidies based on income. Vermont went a step further by offering subsidies for people with slightly higher incomes. For a comparison of the subsidy structure, click here.
Act 48 directs the Green Mountain Care Board to design an income sensitive cost sharing formula as part of the universal health plan. The board must also consider whether cost sharing structures create barriers to medical care.
The law says the Legislature and the Green Mountain Care Board must set the actuarial value of a Green Mountain Care health plan. A plan’s actuarial value is the percentage of costs born by the health plan. The individual patient is liable for the remaining percentage.
A set of triggers built into Act 48 must be met in order to make the transition to Green Mountain Care.
“To get a sense of what those actuarial values look like in practice Vermonters could look at the gold and platinum plans offered through Vermont Health Connect,” said Robin Lunge, director of Health Care Reform for the state.
The actuarial value of a gold plan is between 78 percent and 82 percent, while a platinum plan is between 88 percent and 92 percent.
State employees and many of Vermont’s unions have more generous health plans that, in addition to low premiums, have minimal cost sharing with actuarial values typically at 94 percent.
Those plans are the result of collective bargaining over many years, and labor groups, advocates and pro-labor lawmakers are likely to push for a higher actuarial value in Green Mountain Care.
However, if the actuarial value of union members’ health plans is lowered as a result of their integration into a universal system, it would give them leverage to push for higher salaries.
The administration will present options for cost sharing designs to the Green Mountain Care Board at the end of the year or early next year when it plans to present options for a financing plan and benefits package, Lunge said.
