Friday, November 13, 2015

Premium vs. deductible: New tools oversimplify

Buying health insurance is hard, we're told. Forced to weigh premium against deductible and other out-of-pocket costs, people will make the wrong choice more often than not.  Decision support tools like total cost estimators can reduce that likelihood.

Maybe, maybe not. It seems to me that a cost estimator has to be pretty sophisticated not to oversimplify the decision.

The new Plan Match tool rolled out this month by DC Health Link, the District's ACA marketplace, is in one way at least more informative than healthcare.gov's Total Cost Estimator. The DC tool, furnished by Consumer Checkbook, provides not only a Yearly Cost Estimate that factors in the user's rating of his health, but also an estimate of "Cost in a Bad Year." The latter total is simply the plan's yearly out-of-pocket maximum plus the annual premium.

I'm not sure that that information doesn't give the wrong impression by leaving out a vast middle.

The tool might actually be more useful in any market other than DC -- which, uniquely, extends Medicaid eligibility to adults with incomes up to 210% of the Federal Poverty Level (FPL).  By so doing, DC eliminates the strong Cost Sharing Reduction (CSR) subsidies that are available in most states* to private plan buyers with incomes up to 200% FPL -- but only to buyers of silver plans. For those up to that income threshold, silver plans' out-of-pocket maximum is capped at $2,250  -- compared  to a $6,850 allowable OOP max for bronze plans. In most ACA markets, the "Cost in a Bad Year" would reflect that yawning gap for buyers under 200% FPL.

Weaker CSR is available, in DC and everywhere else, to buyers with incomes in the 200-250% FPL range. At that income level, the out-of-pocket maximum for silver plans is $5,450. That smaller contrast does come into play in the Cost in a Bad Year estimates.


Let's take a look at the choices the DC Plan Match presents to a 40 year-old with an income of $26,000, qualifying her for weak CSR, who rates her health as "very good":


The three top-ranked choices are bronze plans, with deductibles ranging from $4,500 to $6,550; the fourth choice is a silver plan with a deductible of just $1,000. The silver plan's premium is just about $1,000 more than that of the two cheapest bronze options. All three are HSAs, which means no benefits at all before the deductible is reached, except for the ACA's mandatory free preventive care.

What the user sees at a glance is a likely $600 savings for selecting cheapest bronze over cheapest silver, with virtually no difference in "cost in a bad year." That's because the difference in premium, $1056, offsets the difference in out-of-pocket max, $1,200.

But what about the broad middle? The silver plan holder pays the first $1,000 in medical costs, and so at that point the buyer is still $1,000 behind the bronze plan holder. But the bronze plan holder gets no coverage for the next thousand, or the thousand after that, or the thousand after that.

If your medical bills are over about $2,300, you're likely to come out ahead with the silver plan.  The estimator masks a key point: Once the silver plan's (relatively) low deductible is reached, you'll get a lot more care before you start to approach your out-of-pocket max than you would with the bronze plans, because most of the cost is covered. If you need $10,000 worth of care, perhaps your share will be $3,000 -- whereas with the cheapest bronze plan, you'd max out more quickly at $6,550.

The DC tool has a simpler weakness: though the out-of-pocket maximum figures prominently in the cost estimate, it's not shown in the summary results. You have to go two screens further in to find it.

Frankly, none of these plans offer good insurance. The ACA presents pretty stark choices to people over 200% FPL. For me, though, the relevant metric is the $1,000 extra premium for silver versus the higher risk of, say, $3,000--$7,000 in medical bills with the bronze. In the obscenely overpriced U.S. healthcare system, it doesn't take much more than the bodily equivalent of a fender-bender to get into that range. And again, with the silver plan, you'd get a lot more care before you started to approach the upper bound. The Plan Finder elides that difference.

Of course, none of these calculations factor in the ultimate obscenity in U.S. healthcare -- the out-of-network balance billers roaming the halls of in-network hospitals. To deal with that risk you need a lawyer, not a decision support tool.

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* Two states, Minnesota and New York, offer Basic Health Plans (BHPs) to residents up to 200% FPL -- a public plan with very low cost sharing. Massachusetts and Vermont have their own variations on the standard ACA subsidy structure, which provides premium subsidies for buyers with incomes over 138% FPL in states that adopted the ACA Medicaid expansion, and to buyers over 100% FPL in states that refused to expand Medicaid. In "expansion" states, those under 138% FPL are eligible for Medicaid.

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