How Consumers Health Utilization Varies Depending on Benefit Design

Health plan companies spend some time trying to design their benefits in a way that may help avoid unnecessary care, generally by use of cost-sharing like deductibles, copayments and coinsurance.  The assumption is that consumers will be able to decipher what care they really need and act accordingly, regardless of the cost-sharing involved.  The other possibility is that when consumers face cost-sharing they will avoid as much care as they can, including some necessary care, and that once a deductible, for example, or a maximum out-of-pocket limit, is reached, they will then incur as much utilization as they want, even if the care isn’t really necessary.  Consumers aren’t likely to all behave the same, but some generalizations might be discoverable.  The authors of an article in the Journal of Health Economics attempted to see how consumers reacted to the current state of their benefit coverage.  (JHE Article)   The authors were primarily interested in responses to annual deductibles and used the case of fathers’ utilization in the year in which their household was expecting a birth.  Consumers’ anticipation of what a service will cost them gets complicated with an annual deductible, because there is a dramatic difference before and after the deductible is satisfied.  And there can be individual and family deductibles that affect health plan payments for services.  If an individual perceives that they are likely to fulfill deductibles at some point during the year and behaves with respect to receipt of medical services all year as though that will occur, they are said to be forward-looking, and their utilization decisions throughout the year would not be affected by the date on which the deductible is actually met.  If the individual tends to react only to the price at the current point of the year (i.e., if the deductible hasn’t been met they probably bear the full price of a service and so reduce utilization, but once it is met, they likely are responsible for only a small part of the service cost, so increase utilization), they are said to be myopic and that individual’s utilization will likely be lower while still covered by a deductible and higher once the deductible is met.

Childbirth is a known and relatively expensive medical event.  It is likely to cause a family deductible to be met.  So for the father-to-be, does awareness of that likelihood affect their utilization timing (i.e., are they forward-looking or myopic)?  The researchers found that the fathers on average were not forward-looking, but were pretty myopic.  Utilization picked up by an average of 11% once the deductible was actually hit, which would suggest that the fathers were waiting til that date, even though they should have been and probably were aware that it was very highly likely the deductible would be met later in the year anyway.   And the effect was most pronounced for those fathers who met the deductible on or after the birth date as they spend about 39% more than those fathers whose deductible had already been met before the birth date.  Most of the additional spending after the deductible is met is for elective procedures and preventive care.  By contrast, when the researchers looked at the behavior of fathers anticipating a birth in the year, but covered by a plan without a deductible, there was no change in their utilization behavior.  The big picture impact of this research is to provide another strand supporting the notion that consumers simply aren’t very sophisticated in understanding how their benefits work and in anticipating how their actual out-of-pocket cost may vary throughout a year.