The Split Benefit: The Painless Way to Put Skin Back in the Health Care Game

Christopher Robertson

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In 2009, U.S. health care spending reached approximately $2.5 trillion or 17.6% of GDP.  We spend more on health care than on food, housing, transportation, or anything else.  Congressional Budget Office (CBO) leaders have argued that “our country’s financial health will in fact be determined primarily by the growth rate of per capita health care costs.”1  At the household level, health care spending leads to personal bankruptcies and home foreclosures.  “[M]ost analysts have concluded that the bulk of the long-term rise resulted from the health care system’s use of new medical services that were made possible by technological advances . . . .”2

This Essay proposes a solution to the growth of health care costs, focusing on the sector of expensive, and often unproven, treatments.  Political, legal, and market limits prevent insurers and physicians from rationing care or putting downward pressure on prices.  The right of individuals to choose for themselves seems to be a fundamental cultural commitment.  Nonetheless, the insurer bears the cost of these choices, making the patient insensitive to price.  Unsurprisingly, patients thus consume even low-value but high-cost treatments.

The traditional solution is cost-sharing, but for expensive treatments, it soon becomes onerous for patients with limited wealth (i.e., virtually all patients).  When treatments can cost $25,000 or more, one cannot expect the median patient to pay a significant portion thereof.  Instead, patients often enjoy supplemental insurance or exhaust their cost-sharing limits, and thus enjoy full insurance when making such a consumption decision.  Raising the limits is a painful solution, since it would reduce access to care and cause medical bankruptcies.

A new solution emerges from the recognition that insurance currently provides only an “in-kind” benefit, paid to the provider rather than the beneficiary.  Instead, under a “split benefit,” for expensive treatments (costing, say, $100,000), the insurer should consider satisfying its coverage obligation by paying a portion (say, $10,000) directly to the patient.  The patient then decides whether to spend that portion on the treatment.  If so, the insurer pays the balance ($90,000) to the provider, thereby ensuring access.  If the patient instead declines the care, he or she can save or spend the money on anything else.  The insurer saves the balance ($90,000).

Because it is fungible, the split benefit creates an opportunity cost, causing some patients to decline the expensive treatment in lieu of medical and nonmedical alternatives that they value more highly.  Strikingly, the split benefit is consistent with current insurance contracts and regulations, since it does not change coverage or the size of the benefit.  That feature makes the split benefit practicable, unlike many other theoretical solutions.  The split benefit can be used alongside other insurance mechanisms, including traditional cost-sharing, exclusions, and fail-first policies.

The insurer can exercise the split benefit as a unilateral option whenever it is most likely to save money.  Insurers will find the split benefit most useful for procedures (whether drugs, devices, surgeries, or diagnostics) that meet four criteria: (1) the insurer must cover the procedure, (2) the procedure has not been proven to reduce health care expenditures on net, (3) the price of the procedure is disproportionate compared to the patient’s wealth, and (4) the patient would otherwise be likely to consume the treatment.  Even with these limitations, the split benefit proposal covers a broad swath of American health care.  A 2006 study found that twenty-one percent of all prescriptions written in the United States are for off-label uses and that most of these had “little or no scientific support.”

The insurer also has the discretion to select what level of split is optimal for each patient.  The optimal size of the split benefit payment is an empirical question, one that is likely context-dependent.  There will presumably be diminishing marginal returns, such that moving from a 1% to a 10% split may yield a very large reduction in the rate of consumption; but the equally costly step of moving from a 10% split to a 19% split may yield little additional benefit.

Admittedly, the split benefit may create a perverse incentive for individuals to seek prescriptions for treatments they otherwise may not have consumed anyway (a problem of “false demand”).  To some degree, insurers can observe and police these dynamics.  For example, insurers should not use the split benefit for ailments that are easy to fake or where the diagnosis is most subjective.  For example, nonspecific back pain may be one such diagnosis that could be opportunistic for a higher percentage of patients than other diagnoses, such as breast cancer.  Still, if small split benefit payments significantly reduce consumption, there will be some tolerance for the stimulation of false demand.  If a $5,000 payment prevents consumption of a $100,000 treatment, it could tolerate a dozen or more false demand payments while still saving money on net.

Arguably, the split benefit is a better solution than traditional cost sharing or rationing by insurers or physicians, which all reduce access to care.  If a physician refuses to write a prescription because of cost, if an insurer refuses to cover such a prescription, or if an onerous cost share exceeds a patient’s ability to pay—the health care system has denied the patient the choice.  In contrast, the split benefit keeps the decision in the hands of the patient.  The proposal serves patients’ autonomy by giving them additional options.

One might object that the split benefit payment seems coercive, or bribe like, perhaps an “undue influence.”   The worry is that the split benefit payment will unduly push patients away from consuming health care.  To the contrary, the entire insurance relationship on net, even including a split benefit payment, still induces patients toward consuming health care.  The insurer tells the patient that he or she can spend the money on anything, but if the patient wants to consume health care, then the insurer will provide a nine times subsidy (assuming a ten percent split).  Merely allowing the patient to decide how she wants to spend one-tenth of her insurance benefit does not constitute an “undue influence.”

Still, there may be situations where the patient cannot decide whether to consume a treatment, and where someone else, such as a parent or next of kin, decides on the patient’s behalf.  The split benefit proposal may create a conflict of interest if that substituted decision maker receives the benefit of the cash payment (either through expropriation or inheritance), while the patient receives any benefit of the treatment.  It may be best to limit the split benefit program to only those situations where the patient is competent to make treatment decisions.  Still, traditional cost-sharing obligations already impose these sorts of dilemmas on substituted decision makers, who would rather keep the money.  Even worse, traditional cost-sharing obligations, unlike the split benefit, may be so onerous that they deny access to the expensive care altogether.

The split benefit is pluralist about values.  Ezekiel Emanuel put the proposition simply: “The more we spend on health care, the less we can spend on other things we value.”3  By simply making a cash transfer, the split benefit facilitates patients’ trades to higher value, and thereby makes them better off, to the extent that wealth and options are proxies for well-being.

Still, medical literacy will remain a problem.  We know, for example, that most patients undergoing chemotherapy overestimate its potential benefits, supposing that it is curative when it is not.  Even with a split benefit, patients will continue to make bad choices—sometimes consuming a drug or device that they would be better off declining and sometimes declining a drug or device that they would be better off consuming.  The split benefit may change the relative shares of these two types of errors.  Regardless of the split benefit, physicians, insurers, and policymakers should create a “choice architecture,” consisting of second opinions, counseling services, and consumer information to assist patients with the decision-making process.

More particularly, one might worry that the particular form of the split benefit payment— a $5,000 check—may bias patients away from treatments with benefits that are likely to accrue more gradually.  Policymakers could require that splits be paid as annuities with payments spread over the same period of benefit that would be provided by treatment.  It bears emphasis, however, that the rational insurer will pay splits that are small relative to the total cost of the procedure, which allows patients to irrationally double or even quintuple the subjective value of the cash, while still erring on the side of the treatment.

The poorest patients also present a particular concern.  The poor patient’s alternative consumption choices for food or housing are more pressing than those of the median patient.  This makes the poor patient more likely to decline care in order to pursue those alternatives.  Insurers could scale split benefit payments according to patient wealth, but that may appear unfair.  With same-size splits, the benefits of a fungible payment will be greatest for the poor, precisely because those alternative consumption options—such as food or housing—will actually be better for the poor patient than expensive health care.  Even if we focused exclusively on health outcomes, evidence suggests that investments in housing, diet, and education may prove more effective than investments in expensive medical interventions.  If the choice is hard, it is because the alternatives are attractive.

A related objection would invoke the specialness of health.  One might argue, as Amartya Sen has, that “health is among the most important conditions of human life and a critically significant constituent of human capabilities which we have reason to value.”4  Thus, it may seem perverse for the split benefit policy to facilitate patients’ trading health care in favor of other goods, such as housing or even jewelry.

This critique does not bear scrutiny.  People buy insurance to ensure future access to care that they otherwise could not afford.  Ex ante, consumers need not know whether they will actually want to consume a given drug for a given disease that they may someday suffer.  But rational consumers want the option to do so when they become better informed by their actual experience of the situation.  Ex post, having secured the option, a rational consumer may nonetheless prefer to spend that benefit on other things.  The split benefit is perfectly congruent with the option-buying purpose of insurance.  It has the side benefits of increasing patient wealth and reducing insurance costs along the way.  On the aggregate, a split benefit reform may correct the systematic bias in our economy towards low-value, high-cost healthcare.

Acknowledgments:

Christopher Robertson, Associate Professor, James E. Rogers College of Law, University of Arizona, [email protected] The author thanks Ellen Bublick, Michael Bukoski, Glenn Cohen Einer Elhauge, Michael Gill, Allison Hoffman, Holly Fernandez Lynch, Keith Joiner, David Marcus, Toni Massaro, Barak Orbach, Robert Portley, Jamie Robertson, Steve Robertson, Tristan Rogers, Ben Roin, William Sage, Dave Schmidtz, Danny Shahar, Jeff Skopek, Roy Spece, Patrick Taylor, Hannah Tierney, Chad Van Schoelandt, Steve Wall, David Yokum, and several anonymous reviewers for helpful comments. The author thanks Maureen Garmon, Barbara Lopez, James Senften, and Nimish Sheth for excellent research support. The author also thanks the Junior Faculty Forum sponsored by Stanford, Yale, and Harvard; the Harvard Health Law Policy Workshop; the Southeastern Association of Law Schools; Petrie Flom Center for Health Law Policy, Biotechnology, and Bioethics at Harvard Law School; the Freedom Center at the University of Arizona; the University of Arizona Medical Center Bioethics Committee; and the James E. Rogers College of Law—all of which hosted works-in-progress sessions.

This essay is based off of Christopher Robertson, The Split Benefit: The Painless Way to Put Skin Back in the Health Care Game, 98 CORNELL L. REV. 921 (2012).

Copyright © 2013 CORNELL LAW REVIEW.

  1. Peter R. Orszag & Philip Ellis, The Challenge of Rising Health Care Costs—A View from the Congressional Budget Office, 357 NEW ENG. J. MED. 1793, 1793 (2007).
  2. Cong. Budget Office, Technological Change and the Growth of Health Care Spending, 1 (January 2008), available at http://www.cbo.gov/ftpdocs/89xx/doc8947/01-31-TechHealth.pdf.
  3. Ezekiel J. Emanuel, What We Give Up for Health Care, N.Y. Times, Jan. 21, 2012, http://opinionator.blogs.nytimes.com/2012/01/21/what-we-give-up-for-health-care/.
  4. Amartya Sen, Why Health Equity?, 11 HEALTH ECON. 659, 660 (2002).

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