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Clustering of out-of-pocket spending can produce financial hardship

February 3, 2021

Topics: Quote of the Day

By Steven Chen, Paul R. Shafer, Stacie B. Dusetzina, and Michal Horný
Health Affairs, February 2021


The distribution of out-of-pocket spending throughout the year is an important determinant of health care affordability that has received little attention. We used 2017 data from a large database of US commercial insurance claims to study the distribution of patient-level out-of-pocket spending throughout the year, highlighting potential hardship due to temporal clustering of spending. We found that although most commercially insured people had several health care encounters throughout the year, their out-of-pocket spending was mostly concentrated within short time intervals. Nearly one-third of people with above-the-median total annual health care spending (plan plus out-of-pocket spending) incurred half of their annual out-of-pocket spending in just one day. Policy makers working to improve the affordability of care should focus on innovative approaches to cost sharing that prevent dramatic financial shocks to household budgets due to medical bills.

From the Discussion

Our study examined the intrayear dynamics in out-of-pocket spending among people with commercial insurance. We found that a substantial percentage incurred large dollar amounts and large percentages of their annual out-of-pocket spending within short time spans. This pattern could reflect low demand for care among generally healthy enrollees needing limited services, where spending is naturally clustered. Alternatively, this pattern could reflect limited health care use by patients with high demand for care who either delay or forgo care because of costs. Finally, this pattern could also reflect high demand for care among patients who meet their deductibles or out-of-pocket maximums with a single encounter and subsequently face little or no cost sharing for the remainder of the year.

The distribution of out-of-pocket spending throughout the year is an important determinant of health care affordability. Many Americans have less than $2,000 in liquid assets and report facing challenges with affording an unexpected expense of $400 or larger. As a consequence, a large health care expense at a given moment may be unaffordable, particularly for households at the lower end of the socioeconomic ladder. Previous work documented that the financial burden of sudden out-of-pocket health care expenses was higher among low-income families and persisted even after potential anticipatory savings or payment delays that may reduce the burden were accounted for.

Temporal clustering of considerable out-of-pocket spending pertains especially to high-deductible health plan enrollees as deductibles expose them, at least initially, to the full up-front cost of health services each plan year. Commercial plans feature deductibles for several reasons. First, by shifting health care expenses to consumers, deductibles decrease plan premiums, which may lead to greater take-up by people whose expected health care spending is low. Second, increased patient cost sharing through high deductibles is designed to reduce moral hazard, although the evidence shows that high-deductible health plan enrollees reduce the use of both needed and potentially wasteful care. Last, increased patient cost sharing may also steer patients toward lower-cost providers. Because of generally high health care prices, however, our findings suggest that many people reach or come close to reaching their deductibles or other cost-sharing limits within just a few health care encounters that are often clustered in time. As a consequence, the desired incentive for patients to reduce moral hazard or price-shop is undermined.

Hospitalizations are costly, and patients admitted for an inpatient stay have a high chance of reaching their deductible during the hospitalization. Although moral hazard may increase the use of inpatient care, most patients are admitted because of their complex health care needs—a situation in which health insurance, in its core purpose, should shield beneficiaries from large expenditures.


Many people with employer-sponsored insurance incur substantial out-of-pocket spending within a short time span, leading to potential challenges to affording health care. Policy makers working to improve the affordability of care should focus not only on curbing the growth of health care prices but also on innovative approaches to cost sharing that prevent dramatic financial shocks to household budgets as a result of medical bills. For example, instituting monthly rather than the current annual out-of-pocket spending limits could improve access to care and financial security while encouraging judicious use of health care services by patients.



By Don McCanne, M.D.

Cost sharing with high deductibles, coinsurance, and copayments not only exposes patients to potentially unaffordable costs, the clustering of the required cost sharing payments may also create financial hardship for the patients.

The authors suggest various tweaks that might reduce the clustering of the payments, but it does not reduce the affordability of health care for those with limited means.

We have to have a health care financing system since health care must be paid for, but the financing of the system can be achieved through equitable, affordable, progressive taxes. We want people to have the care that they should have, but we do not have to design systems that prevent that care in order to reduce spending.

Medicine is a science and an art. We simply should not offer care that is not beneficial. If outliers are working the system to increase profits, we can take care of them through appropriate disciplinary actions, but let’s not take it out on the patients. Let’s do all we can to see that everyone gets the health care that they should have.

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About the Commentator, Don McCanne

Don McCanne is a retired family practitioner who dedicated the 2nd phase of his career to speaking and writing extensively on single payer and related issues. He served as Physicians for a National Health Program president in 2002 and 2003, then as Senior Health Policy Fellow. For two decades, Don wrote "Quote of the Day", a daily health policy update which inspired HJM.

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