Costs, Out-of-Pocket

Determinants of Out-of-Pocket Prices

The gap between the total price paid for a service and the OOP price faced by the consumer is a function of the basic provisions with respect to patient obligations contained in the public payment policy or the private health insurance contract under which third-party payments are made. Such provisions are often complex, including deductibles (consumer is fully responsible for the first specified amount of spending during a time period), co-payments (consumer is responsible for a fixed payment for each unit of service received once the deductible has been satisfied) or co-insurance (consumer is responsible for a fixed percentage of the price of each unit of service received once the deductible has been satisfied), and stop-loss (consumer is fully insured for additional services once a prespecified, maximum OOP expenditure has been exceeded during a time period).

In addition to these basic policy provisions, the OOP price to the consumer can also be modified by a number of other factors. Third-party payers often place a variety of restrictions on coverage that can directly or indirectly change consumers' OOP obligations. These include service-specific limits (e.g., maximum number of visits allowed to a certain type of provider during a time period) and overall limits (e.g., lifetime maximum expenditures), after which the consumer will face the full price of additional services. In addition, coverage for some services may be denied if specific requirements are not met (e.g., approval of the service by a “gatekeeper” physician or by a third-party payer's pre-authorization or use review process). Third-party payers also often specify whether or not providers can engage in balance billing. Suppose the third-party payment plus the patient's contractual obligation as determined by the provisions discussed above (e.g., co-payments) falls short of the provider's charges. If the provider is allowed to balance bill, the consumer's OOP obligation would increase by the excess of the provider's charges above the amount paid by the third-party payer and the consumer's co-payment obligations. Finally, third-party payers [Page 236]may distinguish between preferred or nonpreferred providers (in-network vs. out-of-network) or treatments (e.g., generic vs. brand name pharmaceuticals) by obligating consumers who elect nonpreferred providers or treatments to pay a higher OOP price. The recent trend toward value-based insurance design operates analogously, identifying classes of patients who may be exempted from OOP obligations for specified services deemed clinically valuable (e.g., diabetes patients may be exempted from insulin co-payments).

...