• Cost effectiveness depends on coverage

    Mark Pauly made a very good point in his recent paper in Health Economics. It’s a fairly simple chain of logic, but not one to which I had given much thought before:

    1. Cost sharing matters. It affects the number and types of patients that receive treatment. As cost sharing goes down (i.e., coverage goes up) not only do more people obtain treatment, but different types of people do so.
    2. In particular, “different types of people” means effectiveness of treatment is heterogeneous across the population that receives it. Not everyone benefits to the same extent. As cost sharing goes down, marginal (and average) effectiveness tends to as well, under the assumption that people or their doctors can assess the likelihood and extent of benefit, at least somewhat. (This is clearly not always true, but it does hold some of the time and for some treatments, at least. We do know something about who is more and less likely to benefit from a coronary stent or a mammogram, say.)
    3. Though it need not be the case, let’s assume treatment costs are constant. (Positive returns to scale at sufficient rate could change the argument. I didn’t notice Pauly considering this, but it’s probably not likely to hold in general anyway.)
    4. Consequently, cost effectiveness varies with coverage. If you evaluate cost effectiveness in a setting in which patients are fully covered, you’ll get a different result than if you do so in which patients are liable for some costs. Something that’s not cost effective with zero cost sharing might be for some positive value of cost sharing because it changes who receives care from a population for which it is, on average, less effective to one for which it is more effective.

    This puts some meat on the bones of generality statements. A cost effectiveness study’s results might not generalize to other populations because they have different levels of coverage. Related, they may have different levels of income or other costs of living (so that cost sharing affects them differently) or receive different levels of benefits from treatment.

    Cost sharing is one of the principle levers of plan design. If one is interested in designing a plan that covers cost effective treatment (in some sense), then one had better pay close attention to interactions with cost sharing as one considers what is and is not cost effective. I doubt the body of evidence on cost effectiveness is rich enough to take this very far at this point. It’s just one more complexity that cost effectiveness researchers should pay attention to, but I think often do not.


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