Tuesday, October 25, 2016

The two-track individual market for health insurance

[Update/correction - This post originally included an important error: the RWJF breakout of off-marketplace metal levels referred to plans offered, not plans selected. While leaving that data in place, I've added survey data from the Commonwealth Fund regarding off-marketplace enrollees' metal level selections that also is not based on actual selection data but does also look rather similar to metal level selection among unsubsidized on-marketplace enrollees, as reported by HHS.]
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There are basically two individual markets for health insurance in the United States: one for subsidy-eligible people earning under 201% of the Federal Poverty Level (FPL), and one for everyone else.

Subsidy-eligible marketplace shoppers with incomes up to 200% FPL are eligible for Cost Sharing Reduction (CSR) subsidies that radically reduce deductibles, copays and maximum out-of-pocket costs. CSR subsidies are available only to those who buy silver plans, as something over 80% of enrollees with incomes up to 200% FPL do.  CSR weakens sharply at 201% FPL and phases out at 251% FPL.

Some time ago I calculated that the weighted average actuarial value for plans sold on the marketplace in 2016 was just about 80%, (The actuarial value is the percentage of the average enrollee's yearly medical costs that the plan is designed to pay.)   80% AV is close to the average for employer-sponsored health plans, and it sounds good, but it masks a sharp division. For those with incomes up to 200% FPL, the average AV was 86%. For the unsubsidized, it was 69%. For those who obtained premium subsidies but had incomes over 200% FPL, it was also 69%.

While average AV was similar for the unsubsidized and the over-200% FPL-subsidized, their choices were somewhat different. About 60% of the over-200%-FPL subsidized group chose silver plans -- in part because weak CSR attaches to silver plans for those in the 200-250% FPL bracket. Among the unsubsidized, only 39% chose silver, but AV was boosted by 18.5% of this more affluent group choosing gold plans, and 3.3% choosing platinum.

This week, the Robert Wood Johnson Foundation published a study, reported by Modern Healthcare's Harris Meyer, that details plan choices offerings (and prices) in the off-marketplace ACA-compliant individual market. [Update: per note above, see Commonwealth Fund data below.] And it turns out, unsurprisingly, that the choices made by those who bought their plans off-marketplace -- by definition, unsubsidized -- look much like the choices of unsubsidized marketplace enrollees: a lot of bronze, but also a lot of gold and platinum.  Below is the breakout of metal level selections offerings off-marketplace for 2016 according to RWJF.*

Actuarial
Value
Percent of
Off-marketplace
enrollees plan offerings
90 (platinum)
  7.0**
80  (gold)
21.6
70 (silver)
33.7
60 (bronze)
33.1
57 (catastrophic)
  4.6**
69.6 (Weighed AVG)


Their choice pattern [insofar as it reflects plan offerings]  is pretty close to that of unsubsidized enrollees on HealthCare.gov:

Actuarial
Value
Percent of
unsubsidized
hc.gov enrollees
90 (platinum)
  3.3
80  (gold)
18.5
70 (silver)
39.0
60 (bronze)
33.0
57 (catastrophic)
  6.8
68.9 (Weighed AVG)


[Update: while I initially mistook plan offerings for plan selections above,, the on-marketplace metal level breakout for plan offerings reported in the Modern Healthcare article referenced above is quite close to marketplace enrollees' selections in bronze and silver, though the percentage of gold  offerings was higher than selections in those metal levels. The same is likely true of the reported off-marketplace offerings vs. selections, judging from the Commonwealth Fund findings discussed below.]

[Update 2: In June, researchers at the Commonwealth Fund Michael J. McCue and Mark A. Hall compared coverage obtained by enrollees in ACA-compliant plans inside and outside the ACA marketplace.***

Commonwealth's estimates of what kinds of plans people bought inside and out of the marketplace are based on insurers' rate filings, and so on their estimates calculated prior to open enrollment. These estimates overstate gold and platinum purchases in the marketplace, as we now know from HHS enrollment stats. Probably they overstate gold/platinum purchases out-of-marketplace as well. But overall, again, the anticipated out-of-marketplace selections by metal level are similar to those of unsubsidized in-marketplace enrollees:

Actuarial
Value
% of unsubsidized
enrollees
90 (Platinum)
13.0
80 (Gold))
22.0
70 (Silver)
36.0
60 (Bronze)
27.0
57 (Catastrophic)
  1.0
71.3% (weighted avg)



In the ACA-compliant market, silver plans, designed as the benchmark and implicit norm, have an AV of 70% when unenhanced by CSR.  Thus the CSR-ineligible market is hewing close to the envisioned norm.   In very broad terms, an individual market in which the near-poor (100-200% FPL) obtain plans with AV averaging 86% and the not-so-poor-to-affluent get plans averaging 70% AV is working more or less as designed.

What I suspect was not envisioned, however, was the very high out-of-pocket cost burden that many in a market averaging out to 70% AV (or slightly below) would be saddled with -- e.g., deductibles approaching $7k in many bronze plans and exceeding $3k in many silvers. In the pre-ACA market, average AV was much lower -- under 60%, according to one study. About a third of customers paid far more than average premiums because they were deemed to have preexisting conditions, and another large segment of would be customers, estimated at 12,7% in an AHIP survey, were shut out of the market entirely by medical underwriting. A recent Brookings study found that if the ACA had not passed, individual market premiums would be considerably higher on average than they are now -- the average inflated, as in the past, by high premiums for those with pre-existing conditions.

Nonetheless, a large subset of individual market enrollees in the pre-ACA market found coverage more affordable then than many of the unsubsidized do now -- even before this year's sharp premium hikes. In the absence of the ACA's mandatory Essential Health Benefits and other coverage rules, many healthy enrollees who had plans subject to coverage caps, or exclusions for, say, pregnancy or mental illness, did not suffer because of those gaps. Steeper age-banding favored the young, and gender-based underwriting favored the male. Most importantly, medical underwriting favored those who were deemed not to have preexisting conditions.

This year, premium hikes in the 25% range will likely push many of the unsubsidized into lower metal levels, if not out of the market altogether. Conversely, those hikes will push some into subsidy range: HHS estimates that 22% of last year's unsubsidized enrollees may be subsidy-eligible this year. One practice that may -- and perhaps should -- flourish is accountant services that help push some insurance seekers under the 400% FPL subsidy cutoff. For some, mostly older prospective enrollees, a slightly bigger IRA contribution or work-based computer purchase that reduces reported net income could be worth thousands in insurance subsidies. Over at healthinsurance.org, Louise Norris lays out several other coping strategies --e.g., for the self-employed, taking the self-employed health insurance deduction, and for others, taking the medical expense deduction.

This year's premium hikes will cause real pain that shouldn't be sugar-coated. ACA subsidies are too skimpy, repeating the pattern of most new benefit launches in U.S. history. Nonetheless, the total individual market is operating at about 70% capacity. It will probably limp along, aided by some administrative fixes, until Democrats somehow muster the political capital to sweeten the subsidies.


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* based on data purchased from data vendor Vericred.

** Harris Meyer reported the percentages for gold, silver, and bronze, and kindly provided me with the figures for platinum and catastrophic.

*** I posted previously on the Commonwealth survey, here.

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