Health Care Costs: On the Rise Again.

The article presents information related to the rise in health care cost. The author states that health care buyers and policymakers often focus in the short term on altering the structure of health care contracts to reduce expenditures at a point in time. Private and public health insurance, along with government subsidies to the purchasers of insurance and directly to providers, shelter consumers of medical services from many of the financial consequences of their decisions. This separation between the price paid by patients and the total cost of the services they use leads to moral hazard, which may generate excessive and excessively costly service use. As a result, there is considerable potential for reductions in expenditures at a point in time, both by making service use decisions more efficient and through the selection of lower-cost providers. Historically, the main strategy for reducing moral hazard in health insurance has been consumer cost sharing. Paying a larger share of the health care bill should lead consumers to be more careful about the quantity of services they consume and the prices they pay. A great deal of evidence shows that cost sharing does reduce health care costs. The best evidence comes from the RAND health insurance experiment conducted between 1974 and 1982.