What does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics*

Abstract

Measuring consumer responsiveness to medical care prices is a central issue in health economics and a key ingredient in the optimal design and regulation of health insurance markets. We leverage a natural experiment at a large self-insured firm that required all of its employees to switch from an insurance plan that provided free health care to a nonlinear, high-deductible plan. The switch caused a spending reduction between 11.8% and 13.8% of total firm-wide health spending. We decompose this spending reduction into the components of (i) consumer price shopping, (ii) quantity reductions, and (iii) quantity substitutions and find that spending reductions are entirely due to outright reductions in quantity. We find no evidence of consumers learning to price shop after two years in high-deductible coverage. Consumers reduce quantities across the spectrum of health care services, including potentially valuable care (e.g., preventive services) and potentially wasteful care (e.g., imaging services). To better understand these changes, we study how consumers respond to the complex structure of the high-deductible contract. Consumers respond heavily to spot prices at the time of care, reducing their spending by 42% when under the deductible, conditional on their true expected end-of-year price and their prior year end-of-year marginal price. There is no evidence of learning to respond to the true shadow price in the second year post-switch.

Designing Difference in Difference Studies: Best Practices for Public Health Policy Research

“…Brot-Goldberg et al (24), specifically look for anticipatory effects, in this case studying the effect of deductibles on health care prices, quantities, and spending. In general, whenever a policy includes a time gap between announcement and effective date, such behaviors are possible.…”

Health Spending For Low-, Middle-, And High-Income Americans, 1963–2012

“…21 Such highdeductible plans cause particularly large drops in healthcare utilization among the highest cost (i.e. sickest) enrollees 22 and disproportionately impact lower-income workers.…”

Does It Pay to Know Prices in Health Care?

“…Although this is consistent with the hypothesis of consumer-directed health carethat consumers will shop around and find lower priced providers when given incentives to do so-it is not direct evidence of this behavior. Without data on search itself, it is difficult to refute the possibility that consumers are simply purchasing less care as in Brot-Goldberg et al (2015).…”