New Research: Small Increases in Patient Co-Payments Reduce Overall Healthcare Costs

March 7, 2014
by Doug Gavel

Higher patient co-payments may prove to be one effective method for trimming overall health care costs.  That is one finding in a research paper co-authored by Harvard Kennedy School Professor Amitabh Chandra. "The impact of patient cost-sharing on low-income populations: Evidence from Massachusetts" is published in January 2014 edition of the Journal of Health Economics. 

"Greater patient cost-sharing could help reduce the fiscal pressures associated with insurance expansion by reducing the scope for moral hazard," Chandra writes.  "But it is possible that low-income recipients are unable to cut back on utilization wisely and that, as a result, higher cost-sharing will lead to worse health and higher downstream costs through increased use of inpatient and outpatient care." 

To test their theory, Chandra and co-authors Jonathan Gruber and Robin McKnight examined data on thousands of enrollees in the Massachusetts Commonwealth Care program, a program similar in design and dimension to the national Affordable Care Act (ACA). 

"Overall, we find than a 10 percent increase in copayments (e.g. from $20 to $30) would reduce healthcare spending by 1.6 percent — similar to elasticities calculated for higher-income populations in other settings," Chandra states. "These elasticities are somewhat smaller for the chronically sick, especially for those with asthma, diabetes, and high cholesterol, and are attributable to lower responsiveness to prices across all categories of service." 

The authors were unable to find evidence of so-called "offset effects," which would be present if the reduced use of outpatient services led to an increased demand for more expensive hospital services.  In previous work, Chandra and his collaborators had noted the presence of utilization cutbacks that harmed health in elderly patients with chronic diseases. 

"Our results suggest that ‘offset effects’ in poorer populations are possible, but require more evidence than we are able to provide," Chandra concludes. 

Amitabh Chandra is an economist, a Professor of Public Policy and Director of Health Policy Research at Harvard Kennedy School. His research focuses on productivity and cost-growth in healthcare, medical malpractice, and racial disparities in healthcare.

Amitabh Chandra

Amitabh Chandra, professor of public policy

"Overall, we find than a 10 percent increase in copayments (e.g. from $20 to $30) would reduce healthcare spending by 1.6 percent — similar to elasticities calculated for higher-income populations in other settings," Chandra states.


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