United Hospital Fund Report Charts Impact of Cost Sharing on Group Premiums and Individual Out-of-Pocket Costs

Cost-Sharing Increases Can Offset Health Insurance Premium Hikes, but the Risk-Spreading Effect of Group Coverage Erodes, and Higher-Need Individuals Shoulder More of the Burden

Release Date: 03.04.2010
Contact: rdeluna@uhfnyc.org
Contact Phone: 212 494 0733

A new United Hospital Fund report examines the impact of cost sharing—deductibles, copayments, and coinsurance—on group health insurance premiums in New York, and the resulting out-of-pocket costs for enrollees. Based on an analysis of cost-sharing elements in small group market products, the report creates prototypical benefit designs showing how premiums vary with different types of cost sharing.

The report Cost Sharing in New York’s Health Insurance Market—prepared by Peter Newell, co-director of the Fund’s Health Insurance Project, and by Gorman Actuarial—also looks at four hypothetical enrollees with varying health care needs, showing the range of out-of-pocket expenditures that result from coverage under the plan designs.

“Cost sharing has for decades been an important tool in the insurance market as a deterrent to overutilization, but increasingly we are seeing it used to help health plans and employer groups offset annual premium increases,” explains Mr. Newell. “These increases in copays, deductibles, and coinsurance are degrading the value of group insurance as a risk-spreading device, and those who have greater health care needs are increasingly bearing the brunt.”

Among the report’s findings:

• Deductibles are the cost-sharing device that produces the greatest impact on premiums.
• High deductibles or combinations of cost-sharing devices can reliably produce premium reductions of 50 percent or more.
• Federal reform proposals could magnify the level and importance of cost sharing in New York’s insurance markets.

“This report sheds new light on why increased cost sharing decreases premiums, how much premiums decrease at varying cost-sharing levels, and how individual enrollees are affected,” says Fund President Jim Tallon. “It’s a timely and significant contribution to ongoing discussions in Washington and New York on how to make our health care markets more transparent and efficient and to promote quality outcomes through benefit designs.”

The report also notes that the complexity and number of options associated with cost-sharing devices cause considerable confusion for employer groups trying to compare coverage options, and for enrollees who use the benefits. Much of this confusion stems from four sources: the sheer number of cost-sharing options, the inconsistent application of out-of-pocket maximums, policy terms that are defined differently by health plans, and insufficient disclosure. The report concludes with a discussion of possible ways to simplify and standardize benefit options, make cost-sharing elements more uniform and easier to understand, and better align cost-sharing elements with quality goals.

Support for Cost Sharing in New York’s Health Insurance Market was provided by the New York State Health Foundation and the New York Community Trust. The full report is available.

About the United Hospital Fund: The United Hospital Fund is a health services research and philanthropic organization whose mission is to shape positive change in health care for the people of New York.

###