Does High Cost-Sharing Slow the Long-term Growth Rate of Health Spending? Evidence from the States

Molly Frean, Mark Pauly

NBER Working Paper No. 25156
Issued in October 2018
NBER Program(s):Health Economics, Health Care

Multiple studies have shown that high-deductible health plans lower spending levels, however, less is known about whether such plans have an effect on spending growth. We begin with a model of the relationship between levels of insurance coverage and both spending levels and spending growth, highlighting the role of new technology adoption in the latter. Next, we leverage cross-sectional variation in private deductibles across states (and over time) to estimate whether areas with relatively higher deductibles experience lower spending growth. We use publicly available data from the Centers for Medicare and Medicaid Services and the Agency for Healthcare Research and Quality from 2002-2016, a period during which deductibles among privately insured employees more than tripled in magnitude and real spending growth exceeded 40%. Consistent with prior empirical work, we find that current period spending growth is significantly lower in states with higher deductible levels but non-responsive to changes in such levels over time. We observe these relationships in models of both private and total spending (including that on behalf of publicly insured and uninsured individuals), suggestive of potential spillovers. Future work should explore the role of other plan benefit characteristics in explaining spending growth and mechanisms underlying any observed effects.

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Document Object Identifier (DOI): 10.3386/w25156

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