Final answer:
Increasing deductibles and copayments can reduce health benefit costs by curtailing moral hazard, where consumers with full insurance overuse healthcare services. HMOs also help by paying providers a fixed sum, encouraging efficient service provision. Studies validate that cost sharing reduces consumption without harming health outcomes.
Step-by-step explanation:
The simplest approach to reducing health benefit costs is to increase the amount of health care costs paid by consumers through cost-sharing measures like deductibles and copayments. These forms of cost sharing discourage moral hazard, which occurs when people consume more healthcare than necessary because they do not bear the full cost of their decisions. When individuals are responsible for a portion of their health care costs, they may use health services more efficiently. To address moral hazard, healthcare incentives have shifted in the United States. While traditional fee-for-service models pay providers for each service, leading to possible over-utilization, health maintenance organizations (HMOs) offer a fixed amount per person, incentivizing providers to offer necessary care more cost-effectively. A mix of these payment models is often used, combining fixed payments with additional compensation for certain treatments.
One study showed that people with moderate deductibles and copayments consumed about one-third less in medical care than those with complete insurance and no out-of-pocket expenses. This indicates cost sharing's effectiveness in reducing healthcare consumption without negatively impacting health status. By focusing on healthcare provider incentives, the system aims to limit excess and ensure care is based on need, potentially reducing overall health benefit costs.