Posting date: June 19, 2002

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Health Affairs, 10.1377/hlthaff.w2.229
Copyright © 2003 by Project HOPE

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How Low Can You Go? The Impact Of Reduced Benefits And Increased Cost Sharing

¹ Jason Lee is senior research manager at the Academy for Health Services Research and Health Policy in Washington, D.C.
² Laura Tollen is a senior policy consultant with the Kaiser Permanente Institute for Health Policy in Oakland, California

^*Corresponding author.

Abstract

Amid escalating health care costs and a managed care backlash, employers are considering traditional cost control methods from the pre-managed care era. We use an actuarial model to estimate the premium-reducing effects of two such methods: increasing employee cost sharing and reducing benefits. Starting from a baseline plan with rich benefits and low cost sharing, estimated premium savings as a result of eliminating five specific benefits were about 22 percent. The same level of savings was also achieved by increasing cost sharing from a $15 copayment with no deductible to 20 percent coinsurance and a $250 deductible. Further increases in cost sharing produced estimated savings of up to 50 percent. We discuss possible market- and individual-level effects of the proliferation of plans with high cost sharing and low benefits.

Key Words: Managed Care, Insurance Coverage, Insurance Coverage--Employer-Based System, Consumer Issues

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