Out-of-Pocket Costs (#4 out of 40)
How Out-of-Pocket Costs Affect Your Health and Wallet: A Guide for Consumers and Policymakers
If you have ever received a medical bill that was higher than you expected, or had to choose between paying for your health care or your other expenses, you know how stressful and frustrating out-of-pocket costs can be. Out-of-pocket costs are the amount of money you pay for your health care that is not covered or reimbursed by your insurance plan. They can include deductibles, copayments, coinsurance, and other services that are not covered by your plan.
Out-of-pocket costs can have a big impact on your health and well-being. They can affect how much you spend on your health care, how often you use health care services, and how satisfied you are with your health care. They can also affect the quality and outcomes of your health care, as well as the health and finances of your family and community.
In this blog post, I will explain what out-of-pocket costs are, why they matter, and how they can be improved. I will also share some tips and resources for managing your out-of-pocket costs and getting the best value for your health care. Whether you are a consumer or a policymaker, this blog post will help you understand and address the challenges and opportunities of out-of-pocket costs in health care.
What Are Out-of-Pocket Costs?
Out-of-pocket costs are the amount of money you pay for your health care that is not covered or reimbursed by your insurance plan. They can vary depending on several factors, such as:
● The type of insurance plan you have. Different plans have different levels of coverage, benefits, and cost-sharing requirements. For example, some plans may cover 100% of preventive services, while others may require you to pay a copay or coinsurance. Some plans may have lower deductibles or out-of-pocket maximums, while others may have higher ones.
● The provider or service you use. Different providers or services may charge different prices or rates for the same or similar service. For example, some providers may be in-network or out-of-network with your plan, which may affect how much your plan pays and how much you pay. Some services may be considered essential or non-essential by your plan, which may affect whether they are covered or not.
● The location or setting where you receive care. Different locations or settings may have different costs or charges for the same or similar service. For example, some locations or settings may be more expensive or less expensive than others, such as a hospital versus a clinic, or an urban area versus a rural area.
● The financial assistance or programs you qualify for. Some financial assistance or programs may help you pay for some or all of your out-of-pocket costs, depending on your income, age, health condition, or other criteria. For example, some programs may offer subsidies, discounts, waivers, or exemptions for your out-of-pocket costs.
(side note: - it is illegal to ask Medicaid patients for copay.
There's gray area because the onus is put on the service provider to collect all copayments
no plan actually mandates physicians to collect copayments lol. "you must collect copayment"
that isn't a thing.
What results? depending on the education level of the staff, there is hope. 9 times out of 10, copay collection is predictably unpredictable)
According to a statistical brief by the Agency for Healthcare Research and Quality (AHRQ), people with some health care expenses had out-of-pocket costs ranging from $283 to more than $2,000 in 2019. The average out-of-pocket cost per person was $1,019 in 2019. The uninsured paid nearly two-thirds of their expenses out of pocket in 2019.
Why Do Out-of-Pocket Costs Matter?
Out-of-pocket costs matter because they can affect your health and well-being in many ways. Here are some of the reasons why out-of-pocket costs matter:
- They can create financial barriers and burdens for you and your family. Out-of-pocket costs can prevent you from seeking or obtaining necessary care, or cause you to delay or forego preventive services, screenings, or treatments. This can result in worse health outcomes, higher costs in the long run, and increased health disparities among different groups.
For example, Mary is a 45-year-old woman who has diabetes and high blood pressure. She has a high-deductible health plan that requires her to pay $2,000 before her insurance kicks in. She also has to pay 20% coinsurance for her doctor visits and prescriptions. She earns $30,000 a year and has no savings. She struggles to pay her rent, utilities, and food bills, let alone her medical bills. She often skips her doctor appointments and medication doses to save money. She also avoids getting a mammogram or a colonoscopy that her doctor recommended because she can't afford the copays. As a result, her health worsens and she develops complications that require more expensive and intensive care.
● They can be unpredictable and confusing for you and your provider. Out-of-pocket costs can vary widely depending on the provider, the service, the location, the network status, and the insurance plan. You may not be aware of or understand your out-of-pocket costs before you receive care, or you may receive unexpected bills or charges after you receive care. This can cause frustration, stress, and dissatisfaction for you and your provider, and reduce your trust and confidence in the health care system.
For example, John is a 35-year-old man who has a low-premium health plan that covers 80% of his health care costs after he pays a $500 deductible. He sprains his ankle while playing soccer and goes to the nearest emergency room for treatment. He assumes that his insurance will cover most of his bill, but he later receives a bill for $2,000. He finds out that the emergency room was out-of-network with his plan, and that his plan only covers 50% of out-of-network costs. He also finds out that he was charged for several services that he did not request or receive, such as an X-ray, a blood test, and a painkiller injection. He feels angry and cheated and tries to dispute the bill, but he faces long wait times and unhelpful customer service.
● They can create misaligned incentives and trade-offs for you and your provider. Out-of-pocket costs can affect the demand and supply of health care services, as well as the quality and efficiency of care delivery. For example, out-of-pocket costs may discourage you from using high-value services that improve your health outcomes, or encourage you to use low-value services that have little or no benefit or even harm your health. Similarly, out-of-pocket costs may incentivize your provider to overuse or underuse certain services, or to prioritize revenue over quality or patient satisfaction.
For example, Lisa is a 55-year-old woman who has a chronic back pain that interferes with her daily activities. She has a health plan that covers 100% of physical therapy sessions, but requires her to pay a $50 copay for each visit to a specialist. She visits her primary care doctor, who refers her to an orthopedic surgeon. The surgeon recommends surgery as the best option for her condition, and tells her that it will cost her nothing out of pocket. She agrees to have the surgery, even though she is not fully informed of the risks and benefits, or the alternatives. She later learns that the surgery was unnecessary and ineffective, and that it caused more complications and pain. She also learns that the surgeon received a higher payment for performing the surgery than for providing conservative treatment.
How Can Out-of-Pocket Costs Be Improved?
Despite these challenges, out-of-pocket costs also present some opportunities for improving health care quality and value. Here are some of the ways that out-of-pocket costs can be improved:
● They can be used as a tool for engaging and empowering you in your health care decisions. Out-of-pocket costs can provide you with information and incentives to compare and choose providers and services based on their quality, cost-effectiveness, and personal preferences. This can enhance your autonomy, accountability, and satisfaction, as well as promote competition and innovation among providers.
For example, David is a 65-year-old man who has Medicare Part D for his prescription drug coverage. He has high cholesterol and needs to take a statin drug every day. He uses an online tool to compare different statin drugs based on their effectiveness, side effects, and prices. He finds out that some statin drugs are more expensive than others, and that some are covered by his plan while others are not. He also finds out that some statin drugs have better ratings from other consumers than others. He decides to choose a generic statin drug that is covered by his plan, has fewer side effects, and has good reviews from other users. He saves money on his out-of-pocket costs and improves his health outcomes.
● They can be used as a lever for aligning incentives and outcomes for you and your provider. Out-of-pocket costs can be designed and implemented in ways that encourage you to use high-value services that improve your health outcomes, and discourage you from using low-value services that have little or no benefit or even harm your health. Similarly, out-of-pocket costs can be linked to provider performance measures such as quality indicators, patient satisfaction scores, or cost savings. This can motivate your provider to deliver high-quality, efficient, and patient-centered care.
For example, Emma is a 25-year-old woman who has asthma and needs to use an inhaler regularly. She has a health plan that uses value-based cost-sharing, which means that her out-of-pocket costs vary based on the value or benefit of the service. She pays nothing for preventive services such as asthma education or spirometry tests, but she pays a higher copay for emergency room visits or hospitalizations for asthma attacks. She also pays a lower copay for generic inhalers than for brand-name inhalers. She decides to follow her asthma action plan, use her inhaler as prescribed, and avoid triggers that worsen her asthma. She reduces her asthma symptoms and attacks, and lowers her out-of-pocket costs.
● They can be used as a source of revenue and savings for financing health care. Out-of-pocket costs can generate income for providers and insurers that can be used to invest in improving health care infrastructure, technology, workforce, or access. Out-of-pocket costs can also reduce unnecessary or wasteful spending on health care services that do not improve health outcomes or value. This can free up resources for expanding coverage, enhancing benefits, or lowering premiums for consumers.
For example, Sarah is a 40-year-old woman who has a high-deductible health plan that requires her to pay $3,000 before her insurance kicks in. She also has a health savings account (HSA) that allows her to save money for her out-of-pocket costs on a tax-free basis. She uses her HSA to pay for her out-of-pocket costs, and also contributes extra money to her HSA when she can. She shops around for the best prices and quality for her health care services, and uses online tools and apps to compare and review providers and services. She also takes good care of her health and wellness, and participates in wellness programs and activities offered by her employer or insurer. She saves money on her out-of-pocket costs and earns rewards or discounts for her healthy behaviors. She also helps her provider and insurer save money on health care costs by avoiding unnecessary or low-value services.
What Are the Recommendations for Policymakers, Researchers, and Practitioners?
To realize these opportunities and overcome these challenges, I propose some recommendations for policymakers, researchers, and practitioners who are involved in designing, implementing, or evaluating out-of-pocket costs in health care.
● Policymakers should establish clear, consistent, and transparent standards and regulations for out-of-pocket costs that protect consumers from excessive or unfair charges, ensure adequate and affordable coverage and access to care, and promote quality and value in health care delivery. For example, policymakers could set limits or caps on out-of-pocket costs for certain services or groups, require providers and insurers to disclose their prices and quality ratings to consumers, or implement value-based payment models that link out-of-pocket costs to health outcomes and value.
● Researchers should conduct rigorous and relevant studies on the effects of out-of-pocket costs on health care utilization, quality, outcomes, costs, and disparities, and identify best practices and innovative solutions for optimizing out-of-pocket costs for different populations, settings, and services. For example, researchers could use randomized controlled trials, natural experiments, or observational studies to measure the impact of out-of-pocket costs on consumer behavior and provider performance, or use qualitative methods, surveys, or focus groups to understand the perceptions and preferences of consumers and providers regarding out-of-pocket costs.
● Practitioners should provide accurate and timely information and education to consumers about their out-of-pocket costs before, during, and after they receive care, and offer financial assistance or counseling to consumers who face difficulties or hardships in paying their out-of-pocket costs. For example, practitioners could use electronic health records, patient portals, or mobile apps to communicate with consumers about their out-of-pocket costs in real time, or use financial navigators, social workers, or community health workers to help consumers access financial aid programs or negotiate payment plans with providers or insurers.
What Are the Ethical Dilemmas and Solutions?
Out-of-pocket costs also raise some ethical dilemmas and questions that need to be addressed and resolved. Some of these dilemmas and questions are:
● How to balance the trade-off between cost-sharing and cost-shifting? Cost-sharing is the practice of requiring consumers to pay a portion of their health care costs, while cost-shifting is the practice of transferring health care costs from one payer or group to another. Cost-sharing can reduce moral hazard and overutilization, but it can also increase financial burden and underutilization. Cost-shifting can reduce financial burden and underutilization, but it can also increase moral hazard and overutilization. A possible solution is to use value-based cost-sharing, which is the practice of varying out-of-pocket costs based on the value or benefit of the service, rather than the price or quantity.
● How to balance the trade-off between equity and efficiency? Equity is the principle of fairness and justice in health care, while efficiency is the principle of maximizing health outcomes and value with limited resources. Out-of-pocket costs can affect both equity and efficiency in health care, depending on how they are distributed and applied. Out-of-pocket costs can increase equity by reducing cross-subsidization and risk-pooling, but they can also decrease efficiency by creating barriers and distortions in health care markets. Out-of-pocket costs can increase efficiency by enhancing consumer choice and provider competition, but they can also decrease equity by creating disparities and inequities in health care access and outcomes. A possible solution is to use progressive cost-sharing, which is the practice of adjusting out-of-pocket costs based on the income or ability to pay of the consumer, rather than the service or provider.
● How to balance the trade-off between autonomy and paternalism? Autonomy is the principle of respecting and honoring the preferences and decisions of consumers in health care, while paternalism is the principle of intervening or influencing the preferences and decisions of consumers for their own good. Out-of-pocket costs can affect both autonomy and paternalism in health care, depending on how they are communicated and implemented. Out-of-pocket costs can increase autonomy by providing information and incentives to consumers to make informed and rational choices, but they can also increase paternalism by nudging or coercing consumers to make certain choices that may not reflect their true values or interests. Out-of-pocket costs can decrease paternalism by allowing consumers to exercise their freedom and responsibility in health care, but they can also decrease autonomy by limiting or restricting their options and opportunities in health care. A possible solution is to use shared decision-making, which is the practice of involving consumers and providers in a collaborative and respectful dialogue about the benefits, risks, costs, and alternatives of different health care options, and reaching a mutually agreeable decision that aligns with the consumer's values and goals.
Conclusion
Out-of-pocket costs are an important and complex issue in health care that affects everyone. They can have positive or negative effects on your health and wallet, depending on how they are designed, implemented, and managed. By understanding and addressing the challenges and opportunities of out-of-pocket costs, you can improve your health care quality and value, and make better decisions for yourself and your community.
If you have any questions or comments, please feel free to share them below. I would love to hear from you. Thank you for reading!
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