Out-of-pocket health costs aren't that high

"Dad, I got a bill for $1,113." One of our daughters was incensed. "I went to my doctor with a simple question. She sent me downstairs where they drew a few tubes of blood for tests. It took two minutes. How do I owe over $1,000?"

She's not the only one outraged by out-of-pocket health costs in the U.S. Many of us feel we are paying more for less and less insurance coverage. We blame high-deductible plans, rising co-pays and other policies that seem to shift more costs onto patients. Headlines such as "Out-of-pocket health spending in 2016 increased at the fastest rate in a decade" amplify the unhappiness.

But the perception of ever higher out-of-pocket health-care costs obscures important facts.

It's true that, in 2016, those costs rose 3.9 percent. But health-care costs overall increased 4.3 percent, so as a percentage of total health-care spending, out-of-pocket costs actually fell. And this has been the case for several years. In 2010, total out-of-pocket costs amounted to almost $300 billion, 11.5 percent of national health expenditures. By 2016, they rose to slightly more than $350 billion, but fell to 10.6 percent of total spending.

What's going on? Well, many people point to businesses shifting more workers into high-deductible health plans. Such plans save an employer, on average, more than $1,500 per insured family. In 2017, more than half of all insured American workers had health insurance with a deductible exceeding $1,000 - that's almost twice as many as had such policies when Obamacare passed. But that's not all that's changed.

The Affordable Care Act has also limited many Americans' exposure to extremely high out-of-pocket spending. By expanding insurance coverage, it has lowered the number of Americans who pay the full bill for all their health care. And it placed a legal limit on out-of-pocket costs for people who have insurance. (Disclosure: We both helped design the Affordable Care Act.)

Before Obamacare, Americans who contracted cancer or had a serious accident or gave birth to a premature baby could be forced into bankruptcy. Today, even high-deductible plans must limit out-of-pocket expenses to $14,300 for a family or $7,150 for an individual. This seems like a lot of money,  but these limits have significantly reduced bankruptcies caused by catastrophic health-care costs. And they're a big reason that, despite higher deductibles, out-of-pocket spending has fallen as a share of overall health spending.

To some extent, people's outrage can be explained by the psychology of high deductibles. Most people are not very sick, and find it daunting to have to pay $3,000 before their insurance benefits kick in. Yet delaying medical care because of the deductible can undermine a person's health. This is why the Affordable Care Act requires insurers to cover, without deductibles, preventive services and three primary care visits.

Of course, it's very unpleasant to receive a bill for $1,113 - but it is dramatically more so to face bills amounting to $20,000 or $30,000 when you get seriously ill. We believe health insurance should involve more protection against very high costs, even as it provides more exposure to small ones. That's effectively what is happening.

Peter R. Orszag is a Bloomberg View columnist. He was President Barack Obama's director of the Office of Management and Budget from 2009 to 2010, director of the Congressional Budget Office from 2007 to 2008. Ezekiel J. Emanuel, an oncologist and former White House advisor, is a vice provost and professor at the University of Pennsylvania.

 

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