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PERSPECTIVES: Eliminate Cost Sharing from Insurance Plans

October 23rd, 2018 | by Stephen Billias

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Cost sharing is the system by which health insurers charge members a portion of payments for health care services as copayment or coinsurance. For example, Medicare Part B covers only 80% of most medical service costs, and members are responsible for paying the remainder of the bill. This current cost-sharing system is needlessly complex and costly to administer. Why?

A more logical system would be that a member pays only the insurance premium and is either covered or not covered for benefits in an insurance plan. In other words, we should consider getting rid of cost sharing. Eliminate deductibles on the same principle. In a system based on plans without deductibles, coinsurance, or copayments, it would be much easier for members to understand their plan’s benefits. Bills would be less confusing, resulting in fewer calls to Member Services with billing questions. Additionally, members would be able to budget their household finances because their insurance bill would be a fixed amount, not one that has to be recalculated every time they access a benefit. For people on fixed incomes and others on tight budgets, this change would be very valuable.

What would this change mean for health insurers and providers? It would be challenging for health insurance plans and providers to find a way to make a reasonable profit and still be able to provide plans at a comparable overall cost that doesn’t involve reducing member benefits. This major change would also reduce or eliminate the health plans’ need for actuaries, bid resubmissions and so forth. Plans would not adjust their benefits. But, this change would not mean going to a “Medicare for all” system. Insurance companies would need to set members’ premiums accordingly, knowing that the premiums alone – and not also copayments or deductibles – will determine the plans’ revenue and profit margins. The result should be that the revamped system provides care at a cost to the member that is lower than the amount of the Premium plus Cost Sharing, while still allowing insurance companies to make a profit (or if a nonprofit company, to comply with rules for nonprofits). For an interesting history of how the original charitable hospital concept became commercialized healthcare, see https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4364435/.

I understand that this is an almost complete revamp of the way costs and profits are calculated in the current system. I also understand that vested interests (actuaries, providers and the health plans themselves) will be resistant to such a vast change. But I also know that the current system fails to provide adequate care for many, makes care too costly for others, and is in danger of collapsing under the weight of its own bureaucracy. Difficult change is necessary.

The prestigious Brookings Institution wrote about this idea in a recent analysis. Here’s an excerpt:

“Further reforming beneficiaries’ financial incentives, CMS could allow for the creation of new Medigap plans that are specifically aligned with ACOs. Under these “Medicare Select” plans, ACO providers could agree to reduce or eliminate the deductibles and cost sharing associated for care provided by them, where the savings may be passed on by Medicare Select as lower premiums.”

I would suggest expanding this initiative beyond Accountable Care Organizations (ACOs) to all Medicare health plans. This is a radically different model from the current system; the ACO example in the Brookings analysis provides at least a rough path toward it.

CODY is well-positioned to accommodate changes in the health plan model. Our software has the flexibility to radically reconfigure as necessary our automated output of Medicare Advantage Annual Notice of Changes (ANOC) and Evidence of Coverage (EOC) documents, as well as other marketing materials such as Summaries of Benefits (SBs) ads, banners and so forth.

For more information on how CODY can help your health plan navigate the ever-changing healthcare landscape, contact us today.


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