Counterproductive cost sharing

The theory behind cost sharing is that it should deter ineffective care. In reality, it is a blunt and crude instrument that places barriers in front of effective care as well as ineffective care. I want to highlight two papers that look at the misaligned incentives of cost sharing in a pragmatic context.

The first examines IUD utilization. It found that the pre-ACA up-front cost-sharing deterred utilization:

Results: Overall, 5.5% of women initiated an IUD in 2011. After adjustment, IUD initiation was less likely among women with higher versus lower co-pays (adjusted risk ratio = 0.65; 95% CI, 0.64–0.67). Women who saw an obstetrician/gynecologist during 2011 were more likely to initiate an IUD (adjusted risk ratio = 2.49; 95% CI, 2.45–2.53).

IUD’s are fix it and forget it contraception. Once an IUD is inserted correctly, it is very difficult for it to fail. It gives significant female autonomy and over the long run of its effective use span, an IUD is less expensive and more reliable than oral hormonal contraception. The big problem pre-ACA with insurers discouraging IUD utilization is that there is a high initial up-front cost which means that a significant portion of the women would experience significant benefits from the IUD including the net cost savings compared to oral contraception after they had stopped paying premiums to the insurer that paid for the IUD. It is a churn problem.

There is another set of problems that come from inefficient cost sharing designs.  It is the non-adherance of effective and high value treatment problem  From one of the same authors, an examination of medication adherence for a long term cancer (Chronic Myeloid Leukemia (CML)) treatment regime that has impressive survival effects.

Over the study period, the mean copayment required for a 30-day supply of imatinib was $108 (SD, $301). Mean copayments varied widely, with patients in the lowest 25th percentile paying $17 and those in the upper 75th percentile paying $53. Importantly, the median copayment required across all years was approximately $30 per fill, but copayments ranged from $0 to $4,792. Over time, monthly copayments increased from an average of $55 in 2002 to $145 in 2010….
Among new users of imatinib, approximately 10% of patients with relatively lower copayment requirements and 17% of patients with higher copayments discontinued therapy during the first 180 days following treatment initiation (Table 2). There was a 70% increase in the risk of discontinuing TKIs among patients with higher copayment requirements (upper 75th percentile; aRR, 1.70; 95% CI, 1.30 to 2.22). Similarly, approximately 21% of patients with lower copayments were nonadherent to their TKI therapy ( 80% of days with drug available) versus 30% of patients with higher copayments. Patients with higher copayments were 42% more likely to be nonadherent to their TKI therapy (aRR, 1.42; 95% CI, 1.19 to 1.69)…..

Okay, there is a lot going on in that results section.  The important take-away is that cancer patients with higher co-payments are far more likely to be non-adherent.  This is financial toxicity, a concept advanced by one of my Duke Margolis colleagues, Dr. Yousuf Zafar.  The cost of treatment forces people away from getting the care that they need.

People don’t elect to have cancer.  It is not an episode that is immediately deferrable.  Once you’re told that you have cancer, treatment usually needs to get started quickly.  And the effective drugs are expensive.  At this point the idea of cost sharing as a means of shaping choices and avoiding preventable conditions goes out the window.  It is merely a burden sharing between the insurer and the individual.  It is just a financial shock with no positive incentive effect when an individual is hit with a dozen other life altering shocks at the same time.

If we are trying to design a system that minimizes non-adherence for financial reasons, we want to change the benefit design.   A theoretically attractive solution would be to offer no cost sharing on effective but expensive courses of treatment for diseases that are not immediately preventable. This would be a value based insurance design approach.  VBID encourages people to get effective care by making it comparatively less expensive than ineffective care or care for preventable episodes.

There is a problem with a VBID approach.  It is an ugly selection problem.  Let’s imagine that there are two types of plans offered.  The first is a standard plan design with high cost sharing for imatinib (Gleevac).  The other is a low or no cost-sharing design for imatinib.  Individuals who are healthy at the start of open enrollment period will choose the standard plan.  Individuals who have CML will go to the low cost sharing pool.  An individual who was healthy at open enrollment and then is diagnosed with CML during the first policy year will switch over.  This incentive structure makes the VBID pool extremely sick.

Sick pools are not show stoppers.  There are tools that can be used to compensate insurers with sick pools.  The most common is risk adjustment where money from either other insurers with healthy pools or the general government funds are sent to the insurers with disproportionate number of CML patients to cover the high and recurring costs.  And given that the VBID design is meant to encourage more people to take more of a very expensive drug, the costs will be higher than the baseline average CML patient cost.  Reinsurance tied to specific diagnosis could work as well.

The other option is to mandate benefit designs that are based on VBID principles for high cost diseases. States could do this on their individual and fully insured group markets but they can’t touch the ERISA regulated employer sponsored self-insured segment.  We would still have a serious churn problem as people with expensive chronic conditions would still be moving between ESI and Exchanges and given the differences in after treatment incomes, these people will be far stickier to their preferred option than healthy people.

Benefit design right now is complex, confusing and ineffective at promoting health in the CML case.  Any changes will also be complex and confusing but hopefully more effective at enabling better health.



** Pace, L. E., Dusetzina, S. B., Fendrick, A. M., Keating, N. L., & Dalton, V. K. (2013). The Impact of Out-of-Pocket Costs on the Use of Intrauterine Contraception Among Women With Employer-sponsored Insurance. Medical Care, 51(11), 959-963. doi:10.1097/mlr.0b013e3182a97b5d

*** Dusetzina, S. B., Winn, A. N., Abel, G. A., Huskamp, H. A., & Keaton, N. L. (2013). Cost Sharing and Adherence to Tyrosine Kinase Inhibitors for Patients With Chronic Myeloid Leukemia. Journal of Clinical Oncology. Retrieved August 4, 2017.

About David Anderson
I am a research associate at the Margolis Center for Health Policy. I've written about health policy at as Richard Mayhew where I've enjoyed explaining the logic behind why an insurance company is behaving the way it is as there is almost always a reason besides pure spite or evil.

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