The split benefit: The painless way to put skin back in the health care game

This Essay proposes a solution to the growth of health care costs, focusing on the sector of expensive, and often unproven, treatments. Political, legal, and market limits prevent insurers and physicians from rationing care or putting downward pressure on prices. Because the insurer bears the cost, the patient is also not sensitive to price, and thus consumes even low-value but high-cost treatments. The traditional cost-sharing solution is onerous for patients with limited wealth. When treatments can cost $25,000 or more, one cannot expect the median patient to pay a significant portion thereof. Instead, patients often enjoy supplemental insurance or exhaust their cost-sharing limits, and thus enjoy full insurance when making such a consumption decision. Raising the limits is a painful solution, since it would reduce access to care and cause medical bankruptcies. A new solution emerges from the recognition that insurance currently provides only an "in-kind" benefit, paid to the provider rather than the beneficiary. Instead, under a "split benefit," for expensive treatments (costing, say, $100,000), the insurer should consider satisfying its coverage obligation by paying a portion (say, $10,000) directly to the patient. The patient then decides whether to spend that portion on the treatment. If so, the insurer pays the balance ($90,000) to the provider, thereby insuring access. If the patient instead declines the care, he or she can save or spend the money on anything else. The insurer saves the balance ($90,000).