Health Care Payment and Financing

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Six Insights on Health Care Affordability From Penn LDI

LDI Fellows’ Research Quantifies the Effects of High Health Care Costs for Consumers and Shines Light on Several Drivers of High U.S. Health Care Costs

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Patient Impacts

1. Out-of-Pocket Prescription Costs

Jalpa Doshi has studied the impacts of both increases and decreases in patients’ out-of-pocket drug costs and finds that even small changes in co-pays can significantly affect whether patients fill prescriptions. While out-of-pocket limits reduce unfilled prescriptions, many patients still cannot afford their medications.

2. Affordability in Traditional Fee-for-Service Medicare

Eric T. Roberts and Paula Chatterjee examined whether Medicare beneficiaries had enough savings to cover the $1,600 hospital deductible. They found that 45% of beneficiaries lacked enough money in checking and savings accounts to cover that cost.

Cost Drivers

3. Vertical Consolidation (when one company owns units across different aspects of care)

Abby Alpert and colleagues found that vertical integration between insurers and pharmacy benefit managers in the pharmaceutical market can harm competition by raising rivals’ costs and premiums without delivering lower premiums to consumers.

4. Horizontal Consolidation (when one company absorbs competitors doing similar work)

Mark V. Pauly and Lawton R. Burns examined 30 years of studies and confirmed that hospital mergers raise prices without improving quality. Atul Gupta and colleagues found that when a multihospital system buys an independent hospital, prices increase and staffing decreases.

5. Corporate Profits

Victor Roy and colleagues found that large publicly traded U.S. health care companies direct substantial spending toward shareholder payouts—through dividends and buybacks—which may divert resources from efforts to improve affordability, quality, and innovation in health care.

6. Private Plans in Medicare 

Aaron L. Schwartz, Amol S. Navathe, and Atul Gupta examined past reductions to Medicare Advantage payment rates and suggested that the program may be able to absorb further payment cuts. Zeke Emanuel argues that Medicare Advantage is rife with waste and potential fraud, with private insurers exploiting loopholes to overcharge the government.

Author

Julia Hinckley

Julia Hinckley, JD

Director of Policy Strategy

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