Can reducing cost sharing save money?

Typically, economists believe that subsidizing goods or services increases utilization and the total amount of funds spent on a good. The RAND Health Insurance Experiment (HIE) proved that lowering cost sharing increases total spending on medical goods. Although reducing cost sharing on all medical care is likely to increase total healthcare spending, subsidizing highly effective therapies can actually reduce total cost.  For instance, lowering coapyments for effective pharmaceuticals may decrease overall cost if the drugs are effective and reduce unnecessary hospitalizations and ER visits.  This approach to varying cost sharing based on treatment efficacy is known as value-based insurance design.

A recent study by Maeng et al. (2016) uses data on a new Geisinger program to make just this point:

The intervention group, defined as 2251 GHS [Geisinger Health System] employees receiving any of the drugs eligible for $0 co-pay, was propensity score matched based on 2 years of pre-intervention claims data to a comparison group, which was defined as 3857 non-GHS employees receiving the same eligible drugs at the same time…Total healthcare spending (medical plus prescription drug spending) among the GHS employees was lower by $144 PMPM (13%; 95% CI, $38-$250) during the months when they were taking any of the eligible drugs. Considering the drug acquisition cost and the forgone co-pay, the estimated return on investment over a 5-year period was 1.8. 

Lowering cost sharing for highly effective treatments–even to a $0 out-of-pocket cost–can produce cost savings if the drugs in question are highly effective.

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