Cost sharing is just that, sharing in the cost of providing a health care service. While health insurers often pay for a large share of health care cost (for those covered), individuals also contribute through deductibles, copayments and coinsurance. The goal of cost sharing is to reduce moral hazard. Moral hazard occurs when the price of a good is below its marginal cost, people will consume more of it. However, because the benefits of health care treatment are often long-term, can be difficult to observe, and often come with side effects, the costs and benefits that a patient observes may not be the same as the actual cost of production and cost sharing may discourage the use of cost-effective, high-value medical or pharmaceutical interventions.
Aaron Carroll at Incidental Economist provides nice overview summary of the potential benefits and key pitfalls of cost sharing.