This Issue Brief explores one of the potential consequences of the return to double-digit health cost inflation: a movement away from comprehensive health care coverage and the degradation of the health insurance risk pools necessary to maintain such coverage. There is growing concern in the health policy community about attempts to "control" health care costs through the temporary fix of demand-side mechanisms (i.e., enrollee cost-sharing) and abandonment of supply-side, or provider-side, mechanisms (i.e., traditional managed care tools). In particular, there is concern about the impact of these changes on the 125 million Americans with chronic illnesses for whom comprehensive health insurance is essential.
Insurers and health plan purchasers tend to use three primary means of reducing or moderating premiums: 1) implementing enrollee cost-sharing; 2) excluding or limiting coverage for certain types of procedures, conditions, and providers; and 3) using selective provider networks and managed care approaches pioneered by health maintenance organizations (HMOs). The Issue Brief examines the first two approaches; the third does not seem to be where most health plans are heading.
Actuaries generally concur that significant premium savings cannot be achieved through minor cost-sharing increases. To have a large impact on premiums, a health plan must introduce or increase deductibles and coinsurance. To explore the variation in cost-sharing arrangements available in California's small-group market, the authors searched an on-line insurance quote Web site to determine what plans would be offered to a fictitious employer. There was a striking amount of variation among the plans and premiums offered.
A pressing question related to proliferation of less comprehensive coverage is how such plans will impact enrollees' use of services and, ultimately, their health status. The RAND Health Insurance Experiment provides insight into these questions, revealing that significant cost-sharing does substantially reduce both appropriate and inappropriate utilization of all types of health services.
It is likely that trends toward higher cost-sharing and/or reduced benefits will continue. While it is unclear what impact these trends will have on health status, they are likely to have important effects on insurance market dynamics, such as: a shift from supply-side to demand-side means of cost-containment; the disappearance of comprehensive coverage; and a return to the "single plan replacement" model of employer-carrier contracting, with its attendant impacts on competition among plans and providers.
