Why Consumers Aren’t Paying Less for Health Care

by Rachel McCann Ermer
Analyst, Sage Growth Partners

Consumer out of pocket spending decreased from 14% of National Health Expenditures (NHE) in 2005 to 12% in 2009. Clearly, consumers are paying less for health care, right?


While the percentage of NHE consisting of consumer out of pocket decreased, the absolute dollar amount of consumer out-of-pocket spending increased in the same period. In 1999, a family of four spent on average $135 out-of-pocket for health care per month, according to a recent Health Affairs study. In 2009, the same family of four spent $235 (a 75% increase). If health care spending grew at the rate of inflation, consumer out of pocket spending in 2009 would have been $165 per month.

While out-of-pocket spending has increased slightly, on an absolute level, the amount of money being spent on premiums, mostly by employers has risen dramatically (129% from 1999-2009). In just the past year, premiums increased by 9%. As premiums have increased for employers, employees’ salary increases have been replaced by these higher premium costs, thus directly affecting employees’ income.

As the percentage of NHE spent by consumer out-of-pocket decreases, consumers utilize more healthcare services. Over 30 years ago, the Rand Health Insurance Experiment studied the impact that out of pocket expenses had on consumers’ usage of medical services. The results demonstrate that the more a consumer is required to pay up front, or out of pocket, the less care they use.

• 86.8% of individuals with free care used medical services
• 78.8% of individuals with 25% coinsurance used medical services
• Individuals with 25% coinsurance had 25% lower outpatient expenditures than those with free care.

So why are patients paying more?

These findings show that patients may actually use more care when out-of-pockets costs are lower, actually increasing overall health expenditures.

Another lesson from this study was that higher co-insurance rates did not have adverse health consequences for the average person. The results of health analyses of those involved in the study were that there were no “substantial benefits” to the free care plan. Patients who had free access to health care did not necessarily gain better quality of health by purchasing more health care. Individuals with higher co-insurance rates may have turned down excessive and unnecessary health care.

According to this evidence, one key way to reduce health expenditures is to have consumers be more active in their care, including paying a larger out-of-pocket percentage. Increasing out-of-pocket costs will force consumers to examine the care they receive and ensure that they are given proper care, not just running up an insurance bill. While this is a change for many, paying more at the point of care can actually result in more take home pay as it may help to limit such steep premium increases that employers pass right along to workers. Although safety-net care will always have a place in society, consumers that are able need to be aware of the costs of their care or health expenditures will continue to rise at seemingly unstoppable rates.