Most health care economists in the U. S. have accepted a conventional theory of health insurance for more than 40 years that assumes that insured people will overuse health care because they have insurance. Based on that assumption, higher cost sharing will save money for the insurance companies. We now have enough experience with it, however, to know that it also fails to contain increasing costs of health care, and instead erects barriers to access. At the same time, it remains a bonanza for insurers while avoiding serious concerns within the health policy community.

This commentary briefly reviews the experience with cost sharing in the U. S., summarizes its adverse impacts, discusses winners and losers from this approach to health care financing, and lists advantages of its being replaced by single-payer financing.

The conventional theory of health insurance has been built on the concept of “moral hazard,” whereby those with insurance are expected to overuse health care services and lead to uncontrolled increases in health care costs. As health care inflation has continued as a major problem in recent decades, however, it is remarkable that this theory has not been seriously challenged in most circles. Some economists have even suggested that high health care prices can be good since they reduce moral hazard.1

An early exception to acceptance of a moral hazard-based view of health insurance, however, was advanced in 2003 by John Nyman, health economist and Professor of Public Health at the University of Minnesota. With The Theory of Demand for Health Insurance, he called for replacing the previously unexamined axiom of risk avoidance with the axiom of welfare maximization. He further proposed that insurance-induced utilization of health care should be viewed as an increase in social welfare.2 In a rare article ten years later supporting Nyman’s re-formulation of moral hazard related to health insurance, economists Sander Kelman and Albert Woodward noted that “Despite its evident validity and enormous implications, Nyman’s work has received very little attention or recognition in the health economics literature.”3

Despite those rare exceptions to the common “wisdom” of health insurance, however, cost-sharing has continued to the present day in most insurance offerings, especially in the form of higher deductibles and copayments, negatively impacting both private insurance as well as privatized public programs. The continuing mantra underlying this approach is that patients will be more judicious in their use of health care if they have “more skin in the game” through cost-sharing at the point of service.

The Case Against Cost-Sharing in Health Care

This approach can be disproven by experience over past years for these kinds of reasons:

  1. It has failed to contain the prices and costs of health care. Uncontrolled prices remain the single biggest cause of run-away health care inflation ranging across our medical-industrial complex from pharmaceuticals to medical devices and high administrative costs. Figure 1 shows how health care costs in the U. S. have relentlessly grown over the last 40 years as compared with the consumer-price index.


  1. It stands as a barrier to access, results in underuse of needed care, and still leaves many patients with high medical bill and debt problems.4 Medical bankruptcy now accounts for two-thirds of personal bankruptcies, involving 530,000 families each year.5
  2. Insurance premiums and deductibles have increased faster over the last 10 years than workers’ wages. (Figure 2) The average deductible for a single worker with employer-sponsored health insurance grew from $379 in 2006 to $1,350 in 2018.6



4. Many insurers offer plans through deceptive marketing practices with attractively low premiums, high deductibles, but restricted benefits in the fine print.

  1. Insurers restrict choice of hospital and physician through narrowing networks,7 and even have an average denial rate for in-network claims of 18 percent.8
  2. A 2019 study found that four in ten people with job-based insurance don’t have enough savings to cover the deductible.9
  3. Many people with high deductibles and less coverage are forced to forego or delay essential care, leaving them with worse outcomes later. Figure 3 shows how high deductibles reduce access to care across the board.10


Dr. Veena Shankaran of the Hutchinson Cancer Research Center in Seattle sums up the financial barriers to access to care in these words:

High-deductible plans are really the epitome of the access to care problem. People don’t have the liquid cash to meet the deductible, so you see delays in care or even avoiding treatment altogether.11

  1. While over-utilization of health care services by people with insurance is not driving inflation of health care costs, over-utilization for other reasons is indeed so related. It has been well known for years that up to one-third of all health care services in this country are either unnecessary or inappropriate.12 Three of four physicians surveyed by the American Board of Internal Medicine in 2016 believed that unnecessary tests and procedures are a continuing problem.13

Winners and Losers with Cost Sharing


As private health insurers consolidate and gain market share without significant oversight or regulation by government, the insurance industry continues to prosper by avoiding higher risk enrollees, increasing premiums without restraint, narrowing their networks, denying services, and exiting markets when not sufficiently profitable.

Overpayments are widespread and increasing in both privatized Medicare and Medicaid plans, more than doubling from $92 billion in 2010 to $360 billion in 2016.14 Insurers typically increase their revenues from Medicare Advantage by up-coding diagnoses, thereby exaggerating how sick their enrollees are, then claiming payment for conditions for which no care was provided.15Overpayments to private Medicaid managed care plans are common in more than 30 states, often involving unnecessary and duplicative payments to providers.16


Patients, families and taxpayers are the big losers in our present financing system for health care. In the most expensive health care system in the world, the U. S. rations care based on ability to pay. The fact that so many Americans cannot afford care is a principal reason that we compare so poorly with other advanced nations in terms of access, quality and outcomes of care, as documented by the periodic studies by the Commonwealth Fund of health care in 11 advanced countries.17 A recent national study by Gallup and West Health, a non-profit organization, found that 58 million adults reported their inability to pay for needed drugs or medicine prescribed by their physicians. It also found that 34 million adults know someone who has died after not getting necessary care because of its unaffordability.18

A 2020 study of unmet needs for U. S. adults ages 18-64 years between 1998 and 2018 drew these conclusions:

  • “most measures of unmet need for physicians’ services have shown no improvement, and financial access to physicians’ services has decreased;
  • the rise of narrow networks, high-deductible plans, and higher co-pays has contributed to the growth of unmet medical needs in the U. S. since the 1990s; and
  • our findings call into question the value of private insurance today, when it fails to ensure that health care is affordable when needed.”19

Taxpayers lose because of the expensive and wasteful bureaucracies established by insurers to deny care, in both private and privatized public plans, that we get to pay for. It is not well known that the private health insurance industry has received continuous federal subsidies for many years averaging $685 billion a year.20

How Single-Payer Medicare for All Can Reform Health Care Financing

As other advanced nations found many years ago, a national system of health insurance will redress the problems listed above while providing universal coverage for all Americans without rationing by inability to pay for care. These advantages can be obtained by replacing our current, multi-payer financing system with a not-for-profit single-payer system:

  • Comprehensive benefits based on medical need, not ability to pay, with full choice of

physicians, other health professionals, and hospitals anywhere in the country.

  • Financial barriers to care removed, with no cost sharing at the point of service

and no need for pre-authorizations of services.

  • Access, equity, quality, and outcomes of care improved.
  • Cost containment achieved through large-scale cost controls, including
  1. negotiated fee schedules for physicians and other health professionals; (b) global annual budgets for hospitals and other facilities; and (c) bulk purchasing of drugs and medical devices.
  • Administration simplified at much lower cost, with an overhead estimated by the Congressional Budget Office as low as 1.5 percent compared to the administrative overhead of privatized Medicare Advantage of 13.7 percent.21
  • Sharing of risk for the costs of illnesses and accidents across all 330 million Americans.


Given the above evidence and experience-based facts with the results from a for-profit, corporatized multi-payer financing system feeding at the trough of federal funding while compromising the health of our population, isn’t it time to adopt a not-for-profit single-payer system directed to the common good?


  1. Pauly, MV. When does curbing health care costs really help the economy? Health Affairs (Millwood) 14 (2): 68-82, 1993.
  2. Nyman, JA. Is “moral hazard” inefficient? The policy implications of a new theory. Health Affairs (Millwood) 23 (5): 194-199, 2004.
  3. Kelman, S, Woodward, A. John Nyman and the economics of health care moral hazard. ISRN Economics, January, 2013.
  4. Davis, K. Half of insured patients with high-deductible plans experience medical bill or debt problems. New York. The Commonwealth Fund, January 27, 2005.
  5. Himmelstein, DU, Lawless. RM, Thorne, D et al. Medical bankruptcy: Still common despite the Affordable Care Act. Am J Public Health, March 2019.
  6. Mathews, AW. Cost of employer health plans jumps. Wall Street Journal, September 26, 2019.
  7. Rosenthal, E. An American Sickness: How Healthcare Became Big Business and How You Can Take It Back. New York. Penguin Press, 2017, pp. 235-236.
  8. Silvers, JB. This is the most realistic path for Medicare for All. New York Times, October 16, 2019.
  9. Levey, NN. Health insurance deductibles soar, leaving Americans with unaffordable bills. Los Angeles Times, May 2, 2019.
  10. Brot-Goldberg, ZC, Chandra, A, Handel, BR, Kolstad, JT. What does a deductible do? The impact of cost sharing on health care prices, quantities, and spending dynamics. National Bureau of Economic Research, October, 2015.
  11. Shankaran, V. As quoted by Stallings, E. High-deductible health policies linked to delayed diagnosis and treatment. NPR, April 18, 2019.
  12. Wenner, JB, Fisher, ES, Skinner, JS. Geography and the debate over Medicare reform. Health Affairs Web Exclusive W-103, February 13, 2002.
  13. Hancock, J. How tiny are benefits from many tests and pills? Researchers paint a picture. Kaiser Health News, October 12, 2016.
  14. Schoen, C, Collins, SR. The Big Five health insurers’ membership and revenue trends: Implications for public policy. Health Affairs 36 (2), December, 2017.
  15. Livingston, S. Insurers profit from Medicare Advantage’s incentive to add coding that boosts reimbursement. Modern Healthcare, September 4, 2018.
  16. Herman, B. Medicaid’s unmanaged managed care. Modern Healthcare, April 30, 2016.
  17. Doty, MM, Tikkanen, R, Fitzgerald, M, et al. Income-related inequalities in affordability and access to primary care in eleven high-income countries. The Commonwealth Fund, December 9, 2020.
  18. Curtin, A. New study shows staggering consequences of for-profit healthcare system and Americans’ inability to pay for it. Nation of Change, November 16, 2019.
  19. Hawks, L, Himmelstein, DU, Woolhandler, S. Trends in unmet needs for physician and preventive services in the United States, 1998-2017. JAMA Intern Med, January 13, 2020.
  20. Bruenig, M. A new Congressional Budget Office study shows that Medicare for All would save hundreds of billions of dollars annually. Jacobin Magazine, December 19, 2020.
  21. Ockerman, E. It costs $685 billion a year to subsidize U. S. health insurance. Bloomberg News, May 23, 2018.


John Geyman, M.D. is professor emeritus of Family Medicine at the University of Washington School of Medicine in Seattle, where he served as Chairman of the Department of Family Medicine from 1976 to 1990. His most recent publications are Struggling and Dying under TrumpCare: How We Can Fix this Fiasco (2019) and a pamphlet, Common Sense: The Case For and Against Medicare for All, Leading Issue in the 2020 Elections (2019).