The Burden of Deciding For Yourself: The Disutility Caused by Out-of-Pocket Healthcare Spending

Abstract

As part of a larger consumer-directed healthcare movement, cost-sharing mechanisms, such as copays and deductibles, cause patients to pay out of pocket for a portion of costs of healthcare they consume. Cost sharing is intended to reduce costs by changing consumption behavior, and it has been shown to be an effective though incomplete solution to problem of unsustainable cost growth. It is controversial nonetheless. This Essay distinguishes three different normative problems with cost sharing (including underinsurance, deterrence of high-value care, and a tax on sickness), which can all be fixed through more precision in design of cost-sharing mechanisms. This Essay provides first sustained investigation of a fourth problem, the decisional burden. By setting aside three foregoing problems and then carefully specifying two alternative counterfactual situations in which cost-sharing obligations are removed, analyst can precisely identify remaining causal impacts of cost sharing, namely: a subjective disutility experienced by patients when navigating a difficult, and potentially unwanted, choice amongst a complex set of options, requiring tradeoffs between health and wealth. Several concepts from behavioral sciences -- cognitive capacity, choice overload, sunk costs, and regret -- shed light on this problem. This Essay reviews select portions of that literature and concludes that decisional burden is a real disadvantage of using patient cost sharing as a mechanism for rationing healthcare. Advocates of cost sharing must bite this bullet.