September 2, 2009

Cost Shifting Does Not Reduce the Cost of Health Care

Author Affiliations

Author Affiliation: Departments of Economics and Health Research and Policy, Stanford University, Stanford, California.

JAMA. 2009;302(9):999-1000. doi:10.1001/jama.2009.1278

Almost every political pronouncement now emphasizes cost reduction as a central object of health care reform. The policy recommendations that follow, however, frequently aim at cost shifting rather than cost reduction. Shifting has popular appeal while reduction usually requires painful choices. To see the irrelevance of shifting for cost reduction, consider the proposal to prohibit health insurance companies from varying premiums according to enrollee's health status. This obviously reduces premiums for the sick but, not so obviously, also increases premiums for the healthy. Such a shift may be desirable on equity grounds but does nothing to reduce the real cost of care. Also, unless accompanied by a strict mandate, these shifts may lead to an increase in the uninsured because some healthy individuals will discontinue their health insurance coverage in response to higher premiums.

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