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Informing Policy. Advancing Health.

Market-Based Solutions for Bending the Health Care Cost Curve

Health care costs are high. There are lots of ideas about how to contain them, running the gamut from increased regulation to free market solutions.

This week the Colorado Health Institute presented information about market-based trends and research on the effectiveness of different free market approaches. We also released  a report that I wrote, “Sharing the Cost: A Changing Landscape,” which takes a closer look at one of the most common and fastest changing market-based approaches to containing health care costs. This is the first in a series looking at consumer engagement and the health care system.

Wednesday, at the final Colorado Health Institute legislative Lunch & Learn of the 2014 session, Senior Director for Policy and Analysis Amy Downs explained market-based cost containment strategies, data available about how effective these approaches are and some of the obstacles to implementing them.

There is good news: Between 2009 and 2011, annual increases in national health care spending were the lowest they have been in 50 years, at 3.9 percent. The bad news is that the cost of health care services continues to increase.

Market-based solutions to fix it are varied, including having consumers bear more of the cost for what they consume, making information more available to consumers and suppliers, and reducing barriers for suppliers to enter the market. While none is a silver bullet to contain costs, some have promise. Finding ways to overcome obstacles to implementation, and learning more about both effectiveness and unintended consequences, is an ongoing process.

Requiring consumers to pay more out-of-pocket is one way to have people be more aware of the cost of health care. “Sharing the Cost: A Changing Landscape” looks at how effective cost-sharing is at controlling spending, and what effects it can have on health. This is a particularly important topic in Colorado, which is among the states with the highest percentage of people enrolled in high-deductible health plans, a common way to apply increased cost-sharing.

The idea of cost-sharing simple: the more people pay for something, the more that market forces kick in and the more they think critically about their purchasing decisions and demand greater value for their money. Increased cost-sharing leads to people using less medical care. But to what degree they use less is not as clear. And some people are more likely than others to pass up care they need when they have to pay more for it – which can lead to worse health.

This report provides an overview of the role of cost-sharing in health insurance, both in the private market and in public insurance. It provides an overview of the evidence available, it identifies areas where more research is needed.

The Colorado Health Institute will continue to analyze market-based solutions to improve the quality and efficiency of the health care system. We will study whether these approaches lead to more engaged and informed customers, and how this may improve health and the patient experience while containing costs.