Health Care Costs and Financing

Healthy, working-age, privately insured consumers currently may be over-insuring for medical care

When consumers are provided with supplemental information on the expected out-of-pocket costs associated with competing health plans for different patterns of health care, they often change their choice of health plan. In fact, consumers—particularly those in relatively good health—tend to shift into plans with lower premiums and less comprehensive benefits. This suggests that relatively healthy, working-age, privately insured consumers currently may be over-insuring for medical care, concludes Michael Schoenbaum, Ph.D., lead author of a study supported in part by the Agency for Healthcare Research and Quality (HS09204).

The researchers randomly assigned 330 adults to read either standard materials on four hypothetical health plans like those typically offered to employees or the standard materials plus one of two types of supplemental decision-support materials intended to help consumers understand the out-of-pocket expenses they could expect in the respective plans.

Consumers who received the "total cost" supplemental material were asked to rate anticipated need for medical care in the next year as none, low, average, high, and very high, which would affect out-of-pocket costs. If their health care needs were expected to be high or very high, the total out-of-pocket costs of the low-benefit plans would be higher than the costs of the high-benefit plans. "Illness episode" supplemental materials helped consumers identify what they might pay out-of-pocket for each health plan choice, based on episodes of illness they might incur in the coming year.

These supplemental materials significantly decreased demand for high benefit/premium plans by 20 percent (from 78 percent to 62 percent). The effect of the cost materials differed substantially by participants' health status. Demand for high premium/benefit plans fell around 25 percent among those in excellent or very good health but actually rose somewhat for those in good or fair health.

See "Health plan choice and information about out-of-pocket costs: An experimental analysis," by Dr. Schoenbaum, Mark Spranca, Ph.D., Marc Elliott, Ph.D., and others, in the Spring 2001 Inquiry 38, pp. 35-48.

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