Thursday, December 01, 2016

Tom Price will probably cut your health insurance subsidy in half

Last week, I noted that the federal government pays a bit more than two thirds of total medical costs for the average traditional Medicare enrollee. That is, the government pays about 85% of the premium(s) for insurance that covers a bit more than 80% of the average user's annual medical costs (that latter percentage is known as a health plan's actuarial value). Subsidies for those who chose Medicare Advantage plans are comparable.

In a followup post, applying the same calculation to subsidized enrollees in the ACA marketplace and prospective enrollees in HHS Secretary nominee Tom Price's ACA repeal-and-replace plan, I came up with the following total subsidy values:

Traditional Medicare:  85% of premium paid for AV 81% coverage = 69% of costs

Subsidized ACA marketplace: 73% of premium paid for AV 81% = 59% of costs (highly variable)

Tom Price ACA replacement: 59% of premium paid for AV 60% coverage = 35% of costs

There are complications to each of those calculations. Traditional Medicare includes three premiums, one of which (Part A) is paid entirely by the federal government and for one of which (Part D) the enrollee's share varies from plan to plan but is calculated to average 25.5% of costs for all but the wealthiest enrollees. For Part B, 95% of enrollees pay 25% of the premium. Put the three premiums together, weighted appropriately, and the federal government pays 85% of the total. The ACA subsidy varies according to income and plan selected and so is different for almost every enrollee; the average share of costs subsidized is  based on a) HHS's report of the average percentage of premium covered by subsidy and b) my calculation, based on HHS reporting, of the average weighted AV of subsidized plans purchased in the marketplace (link above). The Price plan subsidy is calculated on the generous assumptions that premiums in his deregulated market will be reduced by one third from current individual market levels and that those deregulated plans will have an average AV of 60%.  While the estimate of total subsidized costs in the Price plan* is probably high, the estimates for the ACA marketplace and traditional Medicare are based on solid data.

Looking at the multiple of subsidized premium percentage by actuarial value and the resulting subsidy percentages for the three programs,  Richard Mayhew writes:
That is the the essence of the upcoming healthcare fights. Everything else is window dressing or mechanics to shift blame for large benefit cuts.
Thanks to Mayhew for unburying the lead.  Multiplying the (average) premium subsidy by the (average) actuarial value is clarifying, sort of like "total runs accounted for" by a hitter in baseball. Both averages encompass myriad variables, when subsidies vary by income or plan selected and AV also varies by plan selected. Still, the unified measure of the average government subsidy for a given subsidized population is worth keeping in focus during the looming healthcare battles.

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As noted in my post on the Price plan, there's pretty good evidence in that plan that if given his head to reshape Medicare, Price would reduce the total subsidy value for the average enrollee to, or at least toward, the 35% level. Essentially he would extend his ACA repeal/replace plan to seniors. The giveaway is in the plan's multiple provisions to foster and shelter Health Savings Accounts into retirement (and beyond, into inheritance).



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