Co-Pays On Rise, Govt. Regulations Blamed

Published July 1, 2009

Health insurance co-payments are increasing across the nation, and those cost increases may prevent some Americans from getting necessary medications, according to a report from the bimonthly medical journal Archives of Internal Medicine.

“With the economy continuing to become weaker, more people with chronic illnesses will be left unemployed and unable to purchase the increasingly expensive lifesaving drugs they need,” wrote the study’s authors.

Federal Regulations Blamed

Regina Herzlinger, Ph.D., a professor at Harvard Business School and author of the best-selling book Who Killed Health Care? says federal regulations are a chief cause of increased co-pays and overall health care cost hikes.

“The federal government has been miserable in terms of its effect on health care costs,” said Herzlinger. “For all intents and purposes, the federal government controls prices. If you are over 65, you barely have any pricing power, and if you are a doctor in that situation, you have to accept federal government control of what you charge. Prices in the health care marketplace are not determined by the market.

“The government simply decides some prices are wrong, and there’s nothing those affected by that decision can do about it,” Herzlinger added. “Further, the government causes cost increases to the private sector by underpaying the doctors [through Medicare and other government programs], so the private sector’s health insurance companies compensate by raising costs on those who pay for their own health coverage.”

Reacting to Government Intrusion

University of Chicago finance professor John Cochrane, Ph.D., agrees, saying, “Government is largely responsible for out-of-control [co-pay] costs because it’s interfering too much in the market. Ideally, co-pays would be lower, but they do serve a purpose. Co-pay gives people an incentive to look for cheaper suppliers, generic equivalents, and perhaps to diet and lose a little weight.

“If the co-pay is zero, then there really is no market force at all to bring down prices,” Cochrane said.

Consumer Choice Called For

Herzlinger says consumer choice, not government control, is the solution.

“What we need to do to bring down [co-pays] and other prices is to have a system like Switzerland’s. They do not have—like us—a government-sponsored system but instead have a customer-driven system in which health care companies are chasing the consumer to sign them for coverage. If you are poor in Switzerland, you are given a voucher, and you go out and shop for health insurance. It’s a terrific system that delivers first-class health care,” Herzlinger said.

“The federal government has encouraged vast inefficiency in the American health care system, and it has also terribly inhibited pharmaceutical innovation and new entrepreneurs—people who could potentially revolutionize health care—from getting into the health care sector,” Herzlinger said. “The system is terribly inefficient because of the government.”

Thomas Cheplick ([email protected]) writes from Massachusetts.

For more information …

“Cost Sharing and the Initiation of Drug Therapy for the Chronically Ill,” Archives of Internal Medicine: