Health Care Cost Sharing and Cost Containment

by Joseph P. Newhouse

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If cost sharing is eliminated in a national health insurance plan, substantial demand will be generated for services such as physician office visits. This demand increase will probably be spread across all income classes. In the short run, large demand increases will cause services to be rationed. Therefore if it is desired to eliminate cost sharing, a planned gradual phasing out of an initial deductible for the nonpoor is suggested. In the long run, the elimination of cost sharing in a decentralized, fee-for-service system is likely to generate unacceptably high total expenditures for national health care. There are two approaches to dealing with the problem: (1) Restore the link between consumer and producer that exists in the usual market. (2) Establish rate regulation or budget determination in the public sector. The choice between the market approach and the public-sector approach is fundamental and must be made through the political process. (Testimony before Subcommittee on Public Health and Environment of the Committee on Interstate and Foreign Commerce, U.S. House of Representatives, February 24, 1976).

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