Thursday, May 15, 2014

How to choose a health plan? Even Austin Frakt needed help

If you were shopping for a new health insurance plan, how much extra would you be wiling to pay for a plan that included your current doctor or doctors, or a nearby hospital you think well of, or a top cancer center that you don't need now --as far as you know?  How much more deductible and co-insurance would you take on to lower your monthly premium?

These questions are not easy to answer. Not for a 27 year-old transitioning off a parent's health plan. Not for a 35 year-old fast-food worker. Not for a 48 year-old self-employed consultant. Not even for a health economist.

Austin Frakt, a health economist at the U.S. Department of Veterans Affairs and Boston University and co-Editor-in-Chief of The Incidental Economist blog, has had a personal taste of the complex decisions facing shoppers on the health insurance exchanges established by the Affordable Care Act. In many states, buyers are confronted with dozens of plan options -- though for most, price will probably narrow the feasible choice to a handful. As a federal employee, Frakt has for some time chosen his family's insurance on a yearly basis  from a precursor of the exchanges, the Federal Employee Health Benefits Program, which in Massachusetts offers more than a dozen options. He has long chosen Blue Cross Blue Shield plan for his family that has a low deductible and is "accepted pretty much everywhere" -- that is, by every doctor and hospital the Frakt family has had cause to access.

Frakt has more than once considered the possibility that higher deductible plan with a lower premium might save his family money. He tells me, though, that when he considered switching to a high deductible plan without any form of decision support,  the utility of doing so was "very hard to assess. You have to know a good deal of detail about your own plan,  the plan you're comparing it to, and your own utilization pattern. Also, the deductibles and copays for everything. You would want to know if the doctors you currently use are in the other plan's network. It's a very complicated comparison. I was overwhelmed, couldn't compare them meaningfully."

More recently, however, Frakt got a clearer picture from an online tool offered by the nonprofit Consumers' Checkbook, a guide to health plans for federal employees. The tool evaluates federal health plans from the standpoint of three typical families characterized by low, average, and high utilization. The results are not fully personalized, Frakt said, but "give you a sense."

"I was astonished by what I learned," Frakt recalled. "If I thought my family was low-utilizing, we'd maybe save hundreds of dollars per year" with a high deductible plan. If middle-range, there would be "basically no savings." A high-utilization family would pay more if it switched to a high deductible plan.

"This made my choice easy," Frakt said. "We're middle-range. If we switched, we might save a a little -- but endure all this uncertainty. There's no way it's worth the headache. I've now done this twice, and convinced myself twice not to bother." He came away slightly disappointed: "I was kind of interested in trying a product, but I would have to be compensated for all that uncertainty and the disruption I'm sure it would cause."  He might have tried it if he were single, but didn't want to risk causing any bad experiences for his family.

In retrospect, Frakt noted that the results were "exactly what you'd expect. If the risk pool under each of these plans was exactly the same, the average family should spend about the same amount" on low- and high-deductible plans.

The other end of the telescope

If those basics were not clear to a health economist looking at plan outlines with the naked eye, what does that suggest about the likely shopping experience on the new ACA exchanges of uninsured Americans, many of whom do not know what terms like "deductible" and "co-insurance" signify?

"I think it's too complicated," Frakt said. "A lot of people either recognize the complexity and deliberately take short cuts, making judgments based on a few numbers. Or they go with a recommendation of someone they trust, or with a brand name. If they don't recognize that it's so complex they may think they're making an informed decision when they're not. People can't process that much information and make anything like an optimal decision. They take shortcuts that lead to suboptimal decisions." (In a pair 2013 blog posts (1, 2), Frakt surveyed studies suggesting that seniors make suboptimal choices when faced with too many Medicare Advantage or Medicare Part D plans to pick from, or with too much information when selecting a primary care physician.)

To add my own two cents: Frakt's experience does suggest what the first open season demonstrated: that many, many buyers on the ACA exchanges need help -- either from a certified "navigator" or from an insurance broker.

At the same time, the experience of many exchange shoppers (technical glitches aside) is likelier to have been somewhat simpler, because more constrained, than Frakt's. In fact in several ways, a typical ACA shopper's experience may have been a mirror image of his.

For starters, a probable majority of buyers on and the state exchanges were eligible for Cost Sharing Reduction (CSR), which reduces the buyer's deductible and maximum out-of-pocket costs. CSR is available to users whose income if under 250% of the Federal Poverty Level. Such people would be steered toward silver plans, as that is the only level at which CSR can be accessed -- as the online shopping process makes clear. And while many silver plans are on offer in some regions, people with constrained incomes are likely to focus on the two or  three or four cheapest silver plans. Those choices may offer complexity enough. But as they would all offer the same actuarial value, the high-stakes differences would probably boil down to network size and structure --which doctors and which hospitals are included, and whether there are different tiers of coverage for different providers.

For those buyers between 250% and 400% FPL, the maximum at which a premium subsidy is available, plans offered on the exchange are pretty expensive -- the subsidy is calculated to leave the buyer responsible for a premium comprising 8.1% to 9.5% of annual income if they choose a silver plan. Many at this income level might have chosen bronze --especially since, because of an anomaly in the subsidy structure, bronze plan subsidies could be close to zero for older buyers (below 250% FPL, the CSR would remain as a powerful incentive to choose silver). I think the point remains, though, that most buyers would focus their choice on a pretty narrow premium range. As for unsubsidized buyers in the individual market, many will avail themselves of decision support in the form a broker -- it doesn't cost anything

Frakt pointed out a second important difference. The selection process may be "easier when making an initial choice. No matter what people choose, it will be a new, unfamiliar plan. There's no status quo bias. I had a product I was familiar with, which created status quo bias. It's so much easier to stick with what you know."

Third, and perhaps most importantly (back to my own thoughts here): the bias is very different for relatively affluent buyers -- and for presently insured buyers. If buying a less restrictive network does not put a severe strain on your finances, you are much, much likelier to pay to avoid a narrow network -- especially if, as a high earner, you are accustomed to employer-sponsored insurance providing wide access, as has been the norm (now changing rapidly).

Ditto, to some extent, for a low deductible: if you're used to it, and your premium does not impose hardship (even if it's gone up a bit), you are likelier to go with the status quo. If, on the other hand, you are subject to "rate shock" -- the premium for your current insurance shoots up, say, 50% -- you might consider easing the monthly burden by taking the added risk imposed by a higher deductible.

I think, too, that the choices faced by unsubsidized buyers on the ACA exchanges -- or modestly subsidized buyers, earning over 250% FPL -- look daunting to those of us spoiled by typical employer-sponsored insurance.  A health economist can see that narrow networks keep premiums down -- and give insurers some sorely needed pricing leverage in a balkanized market in which healthcare providers have long held most of the cards. It's also pretty clear that high deductibles induce people to spend less if they can manage it.  But in our roles as consumers, few of us willingly subject ourselves to narrow networks or high deductibles if we can avoid doing so.

We may not be able to long avoid these plan features, though. Plans offered on the Affordable Care Act exchanges tend toward narrow networks and high deductibles and co-insurance for those buyers who don't qualify for Cost Sharing Reductions.  Employer-sponsored plans are also shifting in this direction. Growing numbers of employers are looking toward private exchanges, where employees will have multiple options and balance tradeoffs between monthly premiums and network breadth and/or out-of-pocket costs for care. Whether or not you want to call high deductible plans consumer-driven, consumers are being driven toward them -- and also toward narrow networks.

Healthcare economists Austin Frakt, Donald Taylor and Yevgeniy Feyman on the future of healthcare reform

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