Monday, October 05, 2015

Addled by the metal level

Austin Frakt has a series of posts (1,2,3) reviewing research that highlights what a hard time most people have making good choices among insurance plans -- mainly in balancing premium against deductibles and copays. One such study, by a team led by Peter Ubel, highlights (to my mind) a defect in ACA marketplace design:
...two of us recruited a convenience sample of participants from public buses in Durham, North Carolina, and asked them which category of plans they would look at first if they were shopping for health insurance. To half the people, we described the gold plans as having higher monthly premiums and lower out-of-pocket costs — the language used by many exchanges. For the other half, we switched the gold and bronze plans, describing the gold plans as having lower monthly premiums and higher out-of-pocket costs.

...among participants who were below the median in mathematical ability, the majority said they preferred gold plans over bronze plans, regardless of which plan was labeled as gold.
In real life, of course, labeling skimpier plans "gold" would be deceptive marketing, and labeling superior plans with a less-valuable metal would be just plain stupid. But for about two thirds of marketplace customers, that latter mislabeling is pretty much what the marketplace does.

For buyers with incomes under 201% of the Federal Poverty Level (FPL), Cost Sharing Reduction (CSR) subsidies raise the actuarial value of a silver plan -- that is, the percentage of the average user's yearly medical costs that the plan will pay -- to a level higher than that of gold plans sold on the exchange. For those with incomes below 151% FPL, silver plans have a higher actuarial value than platinum plans.  Yet silver plans cost less, and their 'denomination' suggests that they're worth less than the two higher levels. The reason they are thus enhanced will be apparent only to attentive shoppers.

Fortunately, most buyers under 201% FPL will not be tempted by gold or platinum plans, because they'll find the premiums unaffordable. The real, consequential choice is between silver and bronze. There at least the metal sequence points to the superiority of the value of the CSR-enhanced silver -- though it also understates that superiority.

For buyers with incomes under 201% FPL -- again, almost two thirds of all marketplace buyers -- the fundamental choice will commonly be between a bronze plan with a deductible over $5,000 (usually over $6,000) and a silver plan with a deductible usually under $1,000 (and for those with incomes under 150% FPL, usually under $500). The premium difference between cheapest bronze and cheapest silver varies widely according to the buyer's location and age, but is very often between $500 and $1000 per year (and can be much more for a family with older adults).  Because CSR is a freebie for those who qualify, those who forgo it are leaving value on the table.

The studies Frakt highlights for the most part suggest that most people make less than ideal choices when faced with more fine-grained decisions, such as between $30 per month difference in premium versus $500 per year in deductible. Set against this chronicle of mistakes among fairly subtle choices is the relatively heartening fact that about 80% of marketplace customers with incomes under 201% FPL do in fact choose silver.  That's despite the counterintuitive nature of a silver-is-the-most-precious-metal market structure. Perhaps a $6,200 deductible gets people's attention, even if they've never heard the word "deductible" before.

All that said, Healthcare.gov and most state marketplaces could communicate much more clearly about the extra value added by CSR, as well as spelling out unmistakably that the benefit is attached only to silver plans. The roughly 20% of CSR-eligible buyers who end up in bronze plans with sky-high deductibles is still too many.  One way to simplify the messaging would be to label CSR-enhanced plans in a fundamentally different way -- perhaps as "platinum-plus" for buyers within incomes up to 150% FPL and "gold-plus" for buyers in the 150-200% FPL band.*

Perhaps, more radically, CSR could attach to bronze plans (or all metal levels) for those who qualify. Many who qualify for CSR find silver premiums dauntingly expensive; providing a lesser degree of cost reduction to bronze plans might give those customers a viable choice. But at the very least, labeling should not cross wires.

Update, 10/7: Insurance analyst Richard Mayhew suggests that states could opt to relabel metal levels by applying for an ACA "innovation waiver" that allows states that propose variants or replacement schemes that meet the ACA's coverage goals. That reminds me of Mayhew's prior suggestion that states (via waiver) could attach CSR to all metal levels rather than just silver.
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* For buyers in the 200-250% FPL range, CSR raises the AV of a silver plan to just 73%. Perhaps such plans could be labeled "silver-plus."

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