Despite the uncertainty about the future of the Affordable Care Act (ACA) and any replacement, in the coming years, more Americans will almost surely find themselves in health plans with considerable patient cost sharing at the point of service (for example, high deductibles, copayments, or co-insurance). The trend toward more limited plans has been a reality for more than a decade. For example, the average deductible has grown from $818 in 2006 to $2,069 in 2015.
Moreover, Congress may try to reduce cost-sharing subsidies and encourage people to select more limited plans in other ways, such as increasing the attractiveness of health savings accounts. Cost sharing lowers premiums (an important goal for payers and policy makers) by lowering use and, to some extent, encouraging consumers to shop for lower-price care. It also shifts costs away from payers toward patients.
Public debate about more limited insurance plans has mostly focused on their impact on beneficiaries. Missing from the discussion has been an analysis of how these plans could affect providers. Related research shows that each additional uninsured person costs hospitals $900 per year. While the effects of high-deductible health plans and other high cost-sharing policies are likely to be smaller, because they offer some coverage, the portion of beneficiaries facing high cost sharing could be large. Currently, little is known about how high cost sharing affects physician revenue.
Calculating The Provider Burden From Cost Sharing
Using medical claims data from athenahealth’s national network of 88,000 providers, we computed out-of-pocket obligations for commercially insured patients across all provider specialties, from 2012 through 2016. Our sample includes 125 million visits for ambulatory services (for example, office visits and ambulatory surgical procedures) by 18 million patients across 1,348 practices. We excluded ambulatory services delivered in hospitals (for example, hospital outpatient department and emergency department visits).
For each visit, we computed the required patient cost-sharing amount. We looked at those patient obligations across four broad categories, based on size of the patients’ out-of-pocket charge for the visit: small ($0-$35), medium ($35-$75), large ($75-$200), and very large (more than $200). We found that the average patient obligation per visit increased 20 percent between 2012 and 2016, with the overall distribution shifting from small to larger obligations. In 2012, 57 percent of visits were in the small category, falling to 50 percent in 2016. In the same period, by contrast, the share of visits in the very large category increased 23 percent, from 6 percent of the total to 7.4 percent.
Using the 2015 data, we then computed collection rates after 12 months for the different patient obligation size categories (see Figure 1). For visits with small patient obligations, 93.8 percent of the balance was paid within a year. The rate drops to just 66.7 percent for visits with obligations above $200. For visits with the highest obligation, roughly 16 percent were written off as bad debt or abandoned, and about another 17 percent were sent to collection agencies.
Compounding this issue with larger patient balances is the opacity of obligation amounts at the time of service. While practices have visibility at the point of service into patient copayment amounts through eligibility data, the amount they can collect for patients with high-deductible health plans is unknown. Under current rules, they must bill the insurance carrier and wait for an explanation of benefits (often a two-week lag time) before billing the patient for his or her portion. Aside from this being an extremely complex and costly process, we know that collecting any amount becomes markedly more difficult once the patient leaves the office.
The challenge of collecting patient obligations is worse for specialists, who have higher per-visit costs. Our data, for example, found that compared to primary care physicians, the average collection rate after 12 months was 12 percent lower for cardiologists and 9 percent lower for orthopedists.
The tax on providers from increased patient cost sharing occurs against a backdrop of very slowly rising fees. The new physician payment system outlined in the Medicare Access and CHIP Reauthorization Act of 2015 calls for physician fees to rise by 0.5 percent (before accounting for inflation) through 2019 and then to be flat through 2024 and beyond. If general inflation rises by 2 percent through 2024, roughly as projected by the Federal Reserve, this represents an inflation-adjusted reduction in fees on average of more than 10 percent. While some physicians may fare well under the performance bonus system, fee increases for the high performers, beyond the exceptional performance bonus, will be funded by a reduction in fees for low-scoring physicians. The result for physicians could be a perfect storm of fee cuts and losses from writing off uncollected patient payments.
This situation raises several challenges for policy makers. First, they must be cognizant of access problems that may arise if physicians get frustrated and retire or limit access for patients who cannot pay for care. Second, policy makers must develop mechanisms to deal with provider consolidation that may arise as physicians face growing fiscal pressure.
Third, in light of these added pressures, additional regulations that burden providers should be carefully considered. Flexibility and reduced regulatory burden will be essential if providers are to remain solvent. Fourth, policy makers must continue to refine alternative payment models to allow providers to capture the fiscal rewards from efficiencies they create. Admittedly, such payment reform strategies have their drawbacks, but they can work for both providers and payers if they are designed well and providers are committed to, and incentivized toward, more efficient practice.
Finally, policy makers must push for greater pricing transparency so providers know what they are allowed to charge patients before they arrive, and patients are aware of their obligation and prepared to pay. A 2015 Healthcare Advisory Board study found that, for many patients, a predictable price trumps a low price. Compared to not knowing the price of a primary care visit, 74 percent of patients would rather pay $50 out of pocket and 38 percent would be willing to pay $100. As in other markets, providers should have the price transparency and flexibility to offer discounts for time-of-service payments.
For physicians to weather the financial pressures coming, they will need to design and manage a “retail front end” for their practices, with the ability to offer “sales” to patients in return for speedy payment. They will also need to get sophisticated about accessing insurance companies online to assess what patients will owe before they leave the office. As important, physicians will need to find ways to manage their practice costs. Under existing fee-for-service payment models, however, any efficiency gains made by reducing wasteful care are captured by payers.
The blanket assumption that the fiscal challenges of our health care system can be solely addressed by greater reliance on market forces, driven by less generous coverage, overlooks the many limits to such a strategy. Declining collection rates will limit the ability to shift costs to patients. While we must reduce costs overall, any replacements for the ACA must consider all the downstream implications of such cost-reduction efforts on both patients and providers. With a complete picture and full accounting of the interdependencies involved, policy makers and providers can take actions to counter potentially negative impacts with innovative solutions.