Firms embrace cost-sharing; sick pay most

Washington -- More employers are turning to cost-sharing strategies to reduce their spending on health care premiums, but experts say these approaches are too blunt an instrument and often undermine workers' access to services and medicines.

Despite rising health expenses, employers narrowly sidestepped another record increase in their health insurance premiums by passing on more of the cost to their workers.

Greater focus on cost-sharing kept health care premium growth to a still-expensive 10.1% in 2003, down from nearly 15% in 2002, according to a survey by Mercer Human Resource Consulting, Washington, D.C. This year's average increase is expected to hit 13%, and Mercer officials expect employers to shift more cost to workers.

According to the survey, a third of employers raised HMO co-pays for physician office visits last year. The average co-pay in 2003 was $15, but a third of HMO plans had co-pays of $20 or more. Many employers reduced covered services, and deductibles and out-of-pocket spending limits jumped.

Some employers have abandoned co-pays for coinsurance, in which patients pay a percentage of the cost of care, rather than a flat fee. And some employers have resorted to multitiered drug formularies that encourage the use of generics and other low-cost alternatives to brand-name drugs.

"With rapidly rising health insurance premiums and a continued backlash against managed care cost containment, efforts have really shifted from focusing on trying to change provider behavior to looking to change consumer behavior," said Joy Grossman, PhD, associate director of the Center for Studying Health System Change, Washington, D.C.

These strategies are meant to lower health care spending by making patients more aware of the cost of the services they receive.

Cost has never been a major focus of the patient-physician relationship, but in the future, it will have to become part of that dynamic, said Sally Trude, PhD, a senior health researcher with the center.

"Although consumers will become more aware of the costs of care, we need to figure out how that will translate into a dialogue about cost-effectiveness within the doctor's office," she said.

The sick hit hardest

While encouraging patients to economize on health, cost-sharing might have some unintended consequences. "Patients faced with higher cost-sharing typically cut back both on needed care and discretionary care," Grossman said.

The change is unlikely to have much short-term impact on the average worker. Their out-of-pocket costs will remain relatively low, according to an analysis by Dr. Trude. But workers whose usage is above average, such as those with acute or chronic illness, will experience much higher costs than they would have before.

For example, in a typical HMO-model plan with $10 co-pays and no deductible, average annual out-of-pocket costs are $52. In a plan with $20 co-pays for office visits, $150 co-pays for emergency department visits and a $250 per day inpatient hospital co-payment, the average out-of-pocket is still only $236 a year.

In the first plan, however, only 1% of workers would end up spending more than $500 in a year, whereas in the second, 14% would pay more than $500 out of pocket and 6% would spend more than a $1,000. And with more cost-sharing, there is a greater likelihood that workers who face serious disease will have to shell out thousands from their own pockets.

These arrangements also disproportionately affect low-income workers who end up spending a much larger share of their salaries on health care, from 10% to 23%, depending on the cost-sharing structure.

"If cost-sharing is going to play a large role, it needs to be refined" so that it does not become a barrier to care, said Paul B. Ginsburg, PhD, president of the center.

Strategies should focus on reducing the use of discretionary care and ineffective therapies, he said. Protections to ensure that low-income workers and their families still can access necessary services also should be developed, he added.