National Academy of Medicine

Benefit Design to Promote Effective, Efficient, and Affordable Care: A Vital Direction for Health and Health Care

By Michael E. Chernew, A. Mark Fendrick, Sherry Glied, Karen Ignagni, Stephen Parente, Jamie Robinson, and Gail R. Wilensky
September 19, 2016 | Discussion Paper

As health care spending has risen, employers have tried to alleviate the pressure on premiums and wages by increasing patients’ cost-sharing at the point of service. Since 2010, deductibles have increased by 67% and premiums by 24% compared with only a 10% increase in earnings. Moreover, the Medicare benefit package is incomplete. Most Medicare beneficiaries purchase supplemental coverage, but rising health-care premiums and policy changes, such as lower payment to Medicare Advantage plans, may create financial barriers for Medicare beneficiaries. The growth in cost-sharing has led to concerns about an increase in under-insurance (when insured people must pay a large share of their income at the point of service to access care). In 2014, 23% of adults were underinsured compared with 13% in 2005.

The projected increase in health care spending and associated increases in premium contributions and cost-sharing create concerns about the ability of households to afford coverage or care. The form of higher spending at the household level also matters. Higher premiums make it harder for people to afford coverage, but benefit design strategies to reduce premiums (such as higher deductibles, coinsurance, and copays) increase risk, causing some unlucky households to face very high out-of-pocket spending.

Publicly financed efforts to mitigate households’ financial burden of premiums and out-of-pocket spending must be weighed against the efficiency losses associated with increased taxes. It is crucial to ask how much health care we can afford to finance with tax revenue, whether directly or through tax exclusions. Ultimately, addressing concerns about affordability requires addressing the underlying issue of health-care spending growth. Doing that requires some combination of supply-side interventions (such as payment reform) and demand-side interventions (including policies that affect premium contributions or cost-sharing at the point of service).

About the Vital Directions for Health and Health Care Series

Vital DirectionsThis publication is part of the National Academy of Medicine’s Vital Directions for Health and Health Care Initiative, which commissioned expert papers on 19 priority focus areas for U.S. health policy by more than 100 leading researchers, scientists, and policy makers from across the United States. The views presented in this publication and others in the series are those of the authors and do not represent formal consensus positions of the NAM, the National Academies of Sciences, Engineering, and Medicine, or the authors’ organizations.
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Suggested Citation

Chernew, M. E., A. M. Fendrick, S. Glied, K. Ignagni, S. Parente, J. Robinson, and G. R. Wilensky. 2016. Benefit Design to Promote Effective, Efficient, and Affordable Care: A Vital Direction for Health and Health Care. NAM Perspectives. Discussion Paper, National Academy of Medicine, Washington, DC. doi: 10.31478/201609h


Disclaimer: The views expressed in this paper are those of the authors and not necessarily of the authors’ organizations, the National Academy of Medicine (NAM), or the National Academies of Sciences, Engineering, and Medicine (the National Academies). The paper is intended to help inform and stimulate discussion. It is not a report of the NAM or the National Academies. Copyright by the National Academy of Sciences. All rights reserved.