Intermediaries often use patient cost sharing to influence care use and costs. Sometimes, instead of saying cost sharing, I should say we talked about out of pocket payments, out of pocket payments is kind of a funny phrase, isn't it? We use that phrase I guess because we're talking about payments, that come out of the patient's pocket, rather than from the intermediaries, who maybe don't have pockets in this phrasing. Anyway, of course, intermediaries don't have to use cost sharing, and some don't use patient cost sharing. They may care free to patients, but often enough, you'll find it, it's common in the US, for example, and when you do, there are lots of different specific forms that it can take. Let's look at a few of the key areas here. Normally, we can start with the idea that the intermediary is going to cover all the costs of care, and then we look at ways that this gets adjusted, pushing certain costs to the patient in the form of cost sharing. One structure for this we call a deductible. A deductible is an amount that a patient has to pay out of her own pocket, before for an intermediary will start contributing to the cost of care. Often, these are defined on an annual basis. So for example, if you have $1,000 deductible on a calendar year basis, then you start January 1 of every year at zero, the first thousand dollars of medical care that you use in that year, you pay for out of your own pocket, with no contribution from the insurer, after you reach the deductible the thousand dollar mark, then the insurance kicks in, and starts to contribute to the cost of your care. We also find what we call copayments. A copayment is a payment that a patient must make every time they see a provider. For example, a plan member may have a $20 copayment for physician office visits. Then every time he has an office visit, he has to pay $20. The insurance company will pay the rest of the bill, whatever has agreed on with the physician. A third category is, coinsurance. Coinsurance is a little like a co payment, but different. It's a percentage of the bill that the patient has to pay. So a plan might say, for example, that for some services, the plan pays 80% of the allowed amount, and the patient pays 20%. In this case for a $200 bill, the plan would pay $160, 80% and the patient would pay $40. One thing you sometimes have to sort out when you hear this, is who pays which amount? Thinking about our example. Sometimes people will call that a plan with 80% coinsurance, thinking about the amount that plan will pay. Other people might say this is a plan with 20% coinsurance. Thinking about the patient. People sometimes aren't too careful about that, so it can be good to pay attention. Almost always, the majority will be paid by the plan and the lower percent by the patient. But maybe not every single time, deductibles, copayments, coinsurance can come up in a variety of combinations. For example, you might find plans with only copayments and nothing else, or you might find plans with the deductible, and after that some copayments for some services, and coinsurance for others. There are all kinds of different combinations plans. Working with these tools can vary them in lots of ways. You'll see lots of variety out there. Here's some examples of variations. One, variations across services. Plans might set one level of copayment, or coinsurance for primary care visits, and another for specialist visits, another for emergency department services, or others for surgeries. Similarly, deductibles, there can be one deductible for medical care, for example, and maybe another for prescription drugs and they might be different levels. Some people are pushing the idea that cost sharing should be set very low, for the most valuable and important services. And high for other things, not that hasn't been really widely adopted at least not yet. Variation by level of spending is another source. Sometimes, plans will set an amount of out of pocket spending, after which cost sharing requirements change. For example, a plan may say that, after total out of pocket spending in a year reaches like $5,000, just pick a number, then no further cost sharing will be required from the patient. Other variants would reduce or eliminate some cost sharing, but maybe not all cost sharing after a level like this is reached. A term that can be associated with this, is an out of pocket limit, or an out of pocket maximum. Third, there can be variation by in and out of network. Plans with semi-open or semi-closed panels will typically set cost sharing differently, for in network and out of network providers. You pay more cost sharing, if you go out of the defined network. And a fourth example, variation within type of service, but by tier. Plans may group providers of a given type in their network into different tiers or levels, and create what we call a tiered network. For example, plans may take a look at the hospitals in their network, and identify some that they'd like to encourage patients to use, and others that they're less inclined to encourage. Maybe based on things like quality scores, or the cost of the plan when patients use them, then they can set the cost sharing differently. For example, higher coinsurance for patients, if they go to less preferred hospitals and lower coinsurance, better deal if they go to preferred hospitals. Why do plans use cost sharing in these ways? It turns out that these incentives can matter. People will get more care when it's free, than when they have to pay even modest amounts, and people will move in the direction of one provider or another, in response to cost sharing variations. The hope is that by giving patients some incentives, they'll steer themselves to more efficient, more thought through choices about the care they really need, and that it's worth it for them to get. The trade off though is that this puts the patient, back on the hook for some medical care costs. The patients had shifted risk to the intermediaries But more cost sharing shifts some of that risk back to them. If we shift too much, then we start to undo the benefits of people having insurance. So this can be an important thing to think about. And one last category of things to note regarding patient cost sharing. In some situations, patients are on their own, paying out of pocket for the whole amount billed, by the provider for their care. This might be for a closed panel plan when a patient goes out of network, or when a patient wants services that are not covered by their health plan at all. And of course, in some places like the US, we can find patients without insurance. Who then can be in the situation of paying for all of their care out of pocket. In these cases, the providers would normally build the patients directly, maybe based on their chargemaster, or other methods and the patients and the providers would have to work out the payments, how this works. It can be its own topic, really, and it's beyond what we can go into here. But it can be a very important area for some people, in some cases, and it can be another area worth keeping your eye on.
