Do Some Pay Too Little for Health Care?

October 26, 2003

 WASHINGTON - Consider what would happen if employers paid
for their workers' car insurance and if that insurance
covered routine maintenance. No doubt, the cars would spend
a good deal more time in the shop, and the price of repairs
and the cost of auto insurance would skyrocket.

By the same token, some health policy experts say,
Americans see doctors more often, have more procedures and
take more medicine than they need because most, if not all,
of the cost is covered by insurance.

"When consumers don't have to pay any regard to price, they
overconsume," said Kate Sullivan, director of health policy
at the United States Chamber of Commerce. "You get more
value for what you buy when you have a stake in it."

But there would be another consequence if people's cars
received more service: they would run a lot better and last
a lot longer. This analogy may also apply to health care.
"People who have affordable and good health insurance get
good preventive care and treatment when they need it," said
Christine Owens, a health policy specialist at the
A.F.L.-C.I.O. "People who don't have good, affordable
health care delay treatment and are in poorer health."

The question of whether Americans should have to pay more
of their health care expenses out of pocket has become a
central one in labor negotiations and in the political
debates here and in state capitals. More than 80,000
supermarket workers are now on strike in California and
four other states over proposed cuts in their medical
benefits. Transit workers in Los Angeles and garbage
workers in Chicago also walked out this month over changes
in their health insurance.

Workers at Verizon and the Big Three automakers agreed to
much smaller pay raises than they might have expected this
year so that their contracts would retain health plans
allowing them to pay little or nothing for comprehensive
health coverage.

In Congress, negotiators are struggling over what the
elderly should pay if prescription drugs are covered under
Medicare. They are considering charging people who are on
Medicare for part of the cost of home visits by health

Faced with spiraling costs for Medicaid, the federal-state
health insurance program for the poor, many states have
begun requiring low-income adults and the parents of
children covered by the State Children's Health Insurance
Program to make co-payments when they receive medical

"The public is more worried about their rising health care
costs than they are about anything else - even about their
mortgage payments or whether they will lose their savings
in the stock market," said Drew Altman, president of the
Kaiser Family Foundation, which conducts opinion polls
about health matters.

But many economists, liberals and conservatives alike, have
concluded that health costs will continue to rise out of
control unless patients are required to pay more out of
pocket for the services they use.

"As we've moved away from managed care as a cost-control
device, we have no choice but to move to higher deductibles
and co-pays," said John F. Holahan, director of the Health
Policy Center at the Urban Institute, a research group in

The latest Kaiser study shows that workers are dipping into
their wallets more often these days to meet medical
expenses. Since 2000, the average annual cost of insurance
premiums has risen to $9,068 from $6,230 for family
coverage, and the worker's average share is now $2,412, up
from $1,619, an increase of nearly 50 percent. Co-payments
(what patients pay out of pocket for each service) and
deductibles (the annual amount people must pay before
insurance kicks in) have also risen.

What insured workers actually pay for health care varies
widely. The average deductible is $275 for people in
preferred-provider organizations, the most common type of
health plan, but for workers in small companies, it is
almost $500. Co-payments for doctor visits range from $5 to
more than $25, depending on the plan.

But in almost all cases, the expense is not so great that
workers change their behavior - not enough, say, for most
patients to ask doctors in advance what they charge.
Jonathan Gruber, an economist at the Massachusetts
Institute of Technology who was a deputy treasury secretary
in the Clinton administration, argues that to limit overuse
of health care, people should have to pay enough of the
cost out of pocket that it pinches. Perhaps poor people
should be exempt from cost sharing, he said, but "people
with union contracts are affluent enough that they can
afford some co-pays."

Some economists disagree with Mr. Gruber. Market principles
do not apply to health care, they say, because most people
believe good health is priceless.

"If you make people pay more for their health care," said
Uwe Reinhardt, a health economist at Princeton, "all you
are doing is rationing health care according to income.
People like you and me would continue to get all we want,
and those without means would have to do without."

Some economists who are comfortable with the principle of
making people pay more are not sure how much it would take
to keep overall costs down, because all insurance plans
would still cover catastrophic expenses. A large proportion
of total costs are attributable to a relatively small
number of people who are very sick, and their bills
generally exceed the ceiling on catastrophic expenses.

There is no conclusive evidence that people's health would
deteriorate if they were charged more for care. Mr. Gruber
said he was convinced that "the health gains" from generous
health insurance "are not large enough to justify the
additional costs in aggregate."

But Mr. Reinhardt was skeptical and fell back on the auto
insurance analogy. "When I was young and could not afford
regular maintenance, my cars constantly broke down," he
said. "Now my cars run forever."