How Copayment, Coinsurance Impact Member Healthcare Spending

Copayments and coinsurance can impact care utilization in employer-sponsored health plans depending on the service, a recent study published by Employee Benefit Research Institute (EBRI) found.

“One of the strongest trends in employment-based health benefits has been the adoption by employers of high deductible health plans (HDHPs),” the brief began. “Employers have been increasing deductibles because it is one of the easiest plan design changes to adopt in order to manage the cost of providing health benefits.”

As opposed to other strategies such as switching networks, narrowing networks, adjusting prescription drug formularies, EBRI pointed out that raising the deductible only requires adjusting a single figure.

Experts have been torn, however, on whether high deductible health plans actually support lower healthcare spending.

Some experts have found that higher deductibles help control healthcare spending. However, others have found that this result is only visible in the middle range of healthcare spenders. Those with high healthcare costs continue to max out their high deductibles along with their out-of-pocket healthcare spending.

“For these high-use individuals, use of health care services early in the year affects what they pay for health care services at the end of the year. This phenomenon raises questions about the effectiveness of deductibles in controlling spending,” the brief explained.

Once a patient reaches her deductible, she faces two healthcare costs: copayments and coinsurance. A copayment is a set cost that the patient must pay for a service. Coinsurance is the share of the cost that a patient covers for a service, with her payer covering the remaining cost.

Since a copayment is fixed and knowable in advance whereas coinsurance fluctuates with the price of the service, the researchers postulated that coinsurance may affect healthcare spending more significantly than copayments do.

The researchers analyzed data from the IBM Marketscan Commercial Claims and Encounters Database (CCAE) and the IBM Marketscan Benefit Plan Design Database (BPD). The data was for full-time employees enrolled in non-capitated, preferred provider organization plans. The study excluded individuals in high deductible health plans.

The average employee-only deductible was $1,045 and the average family deductible was $1,858.

Employers were most consistent in their approach to employee cost-sharing for inpatient services after employees met their deductibles.

Almost all employees (98 percent) had to cover coinsurance for their inpatient stay at an average rate of 18 percent. For those who had to cover a copay, the average copayment cost around $304 for each inpatient stay.

Approaches to cost-sharing was less predictable for other services.

For emergency department visits, 52 percent of plan enrollees had coinsurance with an average coinsurance rate of 20 percent. The remaining 48 percent had copayments, which averaged around $162.

Likewise, 44 percent of enrollees had coinsurance for outpatient office visits and 56 percent had copayments. Those with coinsurance typically covered around 20 percent of the cost, while their counterparts payed an average copayment of $26 for primary care visits and $41 for specialist visits.

“Indeed, we find that coinsurance reduces use of inpatient care and specialist physician office visits more than copayments,” the brief explained. “In contrast, copayments reduce use of primary care office visits more than coinsurance. Otherwise, we found that copayments and coinsurance had about an equal effect on the use of the other health care services examined in this paper.”

For example, in inpatient care coinsurance, a one percent price increase led to a 0.18 percent utilization decrease. However, inpatient care copayments were unaffected.

Copayments and coinsurance had no effect on emergency department visits and also had little effect on outpatient physical therapy and psychotherapy visits.

The researchers saw the greatest difference between copayment and coinsurance impact in primary care provider visits. When the price for a primary care provider visit increased, patients facing a copayment were nearly twice as likely to decide not to visit their doctors as patients with coinsurance. Outpatient chiropractic care saw a similar trend.

For specialist visits, however, the trend was nearly the reverse. While increased price had no effect on utilization for a patient with a copayment, patients with coinsurance were less likely to visit their specialist.

“If an employer is seeking to manage use of health care services and spending — especially among high users of health care services —moving from copayments to coinsurance for specialist office visits could provide a viable alternative,” the researchers suggested.

This copayments and coinsurance debate has recently come into play as the country reels from the coronavirus pandemic. The Families First Coronavirus Response Act mandated that payers waive coinsurance and copayments to offer Americans financial relief during the pandemic.

Diminishing or eliminating copayments and coinsurance is also a common strategy for reducing prescription drug costs.