More Americans Willing to Limit Physician-Hospital Choice for Lower Medical Costs

Lower Costs vs. Unfettered Choice of Physicians and Hospitals

The proportion of working-age Americans willing to limit their choice of health care providers to save on out-of-pocket medical costs grew significantly between 2001 and 2003, according to HSC's Community Tracking Study (CTS) Household Survey. In 2003, 59 percent of adults aged 18 to 64 covered by employer-sponsored insurance -- roughly 61 million people -- agreed with the statement: "I would be willing to accept a limited choice of physicians and hospitals if I could save money on my out-of-pocket costs for health care." In 2001, 55 percent of working-age adults with employer coverage (58 million) had been willing to make this trade-off.

Consumer demand for broader choice of health care providers had been a driving force behind the managed care backlash of the mid-1990s. Under pressure from employers and consumers, health plans broadened provider networks and eased other care restrictions, but these changes were accompanied by rapidly rising health insurance premiums. In response to those climbing premiums, many employers in 2002 began increasing patient cost sharing through higher deductibles, copayments, and coinsurance.

Consumer preferences on the choice-cost question had been quite stable through 2001, making the shift from 2001 to 2003 all the more notable. A likely explanation was that the growing burden of out-of-pocket medical costs was prompting a reassessment of the choice-cost trade-off.

Income Matters

Income influenced a consumer's willingness to sacrifice choice to save on costs. Among low-income adults with employer-sponsored insurance -- defined as family income below 200 percent of the federal poverty level, or $36,800 for a family of four in 2003 -- two-thirds (67 percent) were willing in 2003 to give up some choice of hospitals and physicians. In comparison, 54 percent of adults with employer coverage and incomes at least 400 percent of poverty were willing to sacrifice choice. That choice-cost preferences would differ by income was not surprising, given that costs would be of greater concern to people with more limited financial resources. What was surprising was that the gap between the lowest and highest income groups was not larger.

Although more affluent consumers were more inclined overall to favor provider choice over cost savings, even the highest income group had become increasingly willing to sacrifice choice (54 percent in 2003 vs. 50 percent in 2001). This result suggested that, while out-of-pocket costs may have represented a heavier burden for low-income people, the impact of increased patient cost sharing had been felt across a broad spectrum of incomes.

Tough Trade-Offs for People with Chronic Conditions

People living with chronic conditions -- diabetes, asthma, depression, and similar illnesses -- usually require ongoing medical care and often rely on specialty and hospital care more than healthy adults. It was commonly assumed that people with chronic conditions would be less willing to limit their choice of providers to save on costs. However, precisely because people with chronic conditions needed and used more health services, they shouldered a higher out-of-pocket cost burden and had been hit harder by the cost-sharing increases of recent years than healthy adults.

Among chronically ill adults with employer-sponsored insurance, 56 percent said they were willing to accept limited choice of providers to save on costs in 2003. This level of willingness was only slightly lower than the 59 percent reported by all working-age adults with employer coverage.

The same income patterns observed for all working-age adults also held for those with chronic conditions: the lower the income, the greater the willingness to sacrifice choice to save on out-of-pocket costs. Among the lowest-income group with chronic conditions, 68 percent would limit provider choice to get cost savings, compared with 51 percent of the highest-income group -- a larger gap than for all working-age adults with employer coverage. Even for the highest-income group with chronic conditions, however, at least half now said they would sacrifice provider choice to save on costs, a substantial increase from the 45 percent who were willing to make this trade-off in 2001.

At each income level, willingness by chronically ill people to give up choice to gain cost savings had increased significantly -- by 5 to 6 percentage points, a substantial increase for a two-year period. These increases were larger than those reported by people without chronic conditions, and one likely explanation was that the increase in patient cost sharing had fallen most heavily on people with chronic conditions, making them more willing to sacrifice choice. Within the lowest-income group, people with chronic conditions were at least as likely as those without chronic conditions to be willing to give up choice -- about two-thirds of both groups.

Opinions Diverse and Divided

Americans were deeply divided over the trade-off between unfettered choice of physicians and hospitals and lowering out-of-pocket health costs. While 59 percent of working-age adults with employer coverage would limit provider choice for lower costs, a large minority (40 percent) was unwilling. And substantial minorities felt intensely about this question: 20 percent were strongly willing to limit provider choice, while 21 percent were strongly unwilling.

Examining the changes in how intensely Americans felt about the choice-cost trade-off indicated that preferences were evolving along a continuum. Between 2001 and 2003, the proportion strongly unwilling to limit provider choice declined from 25 percent to 21 percent. The somewhat unwilling category remained at 19 percent, but the category that gained the most was the somewhat willing category, rising from 36 percent in 2001 to 39 percent in 2003. The fact that this category, rather than the strongly willing category, saw the significant growth suggested that consumers' growing willingness to limit choice may still have been soft.

Across income groups, there was not much difference in the proportion of people with mild preferences -- those somewhat willing or somewhat unwilling -- about giving up choice to save costs. The most notable difference among income groups lay in the proportion of those who expressed greater intensity in preferences. Low-income people with employer coverage were about twice as likely as higher-income people to be strongly willing to sacrifice choice (31 percent vs. 16 percent). At the opposite end, a much higher proportion of high-income people were strongly unwilling to limit choice compared with low-income people (24 percent vs. 15 percent).

Implications for Employers and Insurers

Given the diversity of choice-cost opinions, it was striking that in recent years so many employers had chosen to adopt broader provider networks and increase patient cost sharing. However, this trend in employer insurance offerings was consistent with previous research finding that firms' health benefit decisions were substantially influenced by the preferences of the most highly compensated workers. Recent changes in health insurance offerings appeared to have been driven by a minority of influential, highly paid workers dissatisfied with restricted provider choice and other aspects of tightly managed care.

Offering a variety of insurance products representing different choice-cost options would satisfy the largest number of consumers. Yet in recent years, many employers, faced with high administrative costs and risk-segmentation issues that came with offering multiple health plans, had reduced the range of insurance options offered to workers. Fewer employees were now offered a health maintenance organization (HMO) as one of their options. Only 47 percent of covered workers had access to an HMO product in 2003, down from 64 percent in 1996. Among people willing to limit provider choice in return for lower costs, fewer were able to exercise those preferences. And among consumers who maintained access to HMOs, some may have received more provider choice and paid more for it than they would have preferred, because many HMOs had broadened their networks and eased care restrictions in exchange for higher premiums.

The finding that more insured Americans were willing to trade choice for lower costs raised the question of whether there might be renewed interest in restrictive provider network products. Employers and insurers had been reluctant to risk employee discontent by returning to restrictive networks, but with health costs continuing to outpace wage growth, resistance to these products may lessen. Rather than returning to traditional restrictive networks, some health plans had begun to introduce high-performance networks, which they hoped would be more appealing to consumers because the narrow networks would consist of providers the plans had identified to be both cost effective and high quality.

As an alternative to offering a range of health plans, a few employers and insurers were starting to offer products that carried multiple options within a single plan. Tiered-provider networks, for example, allowed consumers to make trade-offs between costs and provider choice instead of having health plans make the decisions, and so may have proved more attractive to employers and consumers than more restrictive plans. Conceptually similar to tiered-pharmacy benefits, which had become the dominant form of prescription-drug coverage, tiered-provider networks had faced many operational challenges as well as strong resistance from providers and had not been widely adopted by employers. These results, however, suggested that in principle tiered-provider networks and other insurance products that offered consumers multiple choice-cost options could attract a sizeable market.

As health cost increases continued to outpace income growth, more consumers may have become willing to restrict their choice of providers to ease their out-of-pocket cost burden. Some who were only somewhat willing to limit choice may have become more strongly inclined to do so and may have sought access to lower-cost, limited-choice insurance products. Whether employers provided such options likely depended on whether they perceived enough demand from their highly paid workers -- often the portion of their workforce for which recruitment and retention concerns were greatest. If employers did not see the need to provide lower-cost options to satisfy high-earning workers, then it was unlikely that these options would be offered broadly. Increasingly, consumers willing to limit provider choice for lower costs may have found no way of satisfying those preferences. The result could have been lower take-up of employer-sponsored insurance and an increase in uninsured Americans.

Sources and Further Reading

This Issue Brief (No. 94, March 2005) was authored by Ha T. Tu and published by the Center for Studying Health System Change (HSC). The findings were based on analysis of the CTS Household Survey, a nationally representative telephone survey conducted in 1996-97, 1998-99, 2000-01, and 2003. The first three rounds contained information on about 39,000 adults aged 18-64, including 28,000 with employer-sponsored insurance; the 2003 survey contained responses from about 30,000 adults aged 18-64, including 20,500 with employer-sponsored insurance.

Tu, Ha T. Rising Health Costs, Medical Debt and Chronic Conditions. Issue Brief No. 88, Center for Studying Health System Change (September 2004). Gabel, Jon, et al. "Health Benefits in 2003: Premiums Reach Thirteen-Year High As Employers Adopt New Forms of Cost Sharing." Health Affairs, Vol. 22, No. 5 (September/October 2003). Kaiser Family Foundation and Health Research and Educational Trust. Employer Health Benefits: 2004 Annual Survey.

KFF — Health Costs — Data and analysis on health care costs and employer coverage.

Commonwealth Fund — Research on health insurance, consumer choice, and costs.

Health Affairs — Peer-reviewed journal on health policy and consumer preferences.