Saturday, December 06, 2014

Instead of adding copper plans to the ACA marketplace, enhance bronze

One of the relative successes of the ACA's first open season is the high rate at which private plan buyers who were eligible for Cost Sharing Reduction (CSR) subsidies, which attach only to silver plans, did in fact choose silver.

In so doing, they resisted the temptation to pay far less per month for bronze plans, which carry sky-high deductibles and out-of-pocket maximums, unsoftened by CSR. As I've noted before, in the federal marketplace only 15% of buyers eligible for any kind of subsidy (including those who earn too much for CSR) bought bronze plans.

That's kind of surprising, since the premiums for silver plans are quite high for those in the middle income range of CSR eligibility. For a 44 year-old earning $23,000 per year, the benchmark second-cheapest silver plan in 2015 will cost $118, and the cheapest silver is usually only a few dollars cheaper.  The cheapest bronze plan price for this 44 year-old varies widely by state and county, falling most commonly in the $50--$75 range. That price spread between bronze and silver widens with age; a buyer in her 60s at this income level will often pay nothing or next to nothing for a bronze plan, versus the same $118 for silver (the subsidized benchmark price is a percentage of income and doesn't change with age).

I am troubled by the high premiums that low-income people have to pay for silver. $118 per month on an income of under $2,000 per month is quite a swallow. Though paying the extra premium for silver could save the buyer thousands in out-of-pocket medical costs, I'm impressed that so many many had the discipline to do it.  Prompted by a comment by xpostfactoid reader Bob Hertz, I find myself wondering: why do CSR subsidies attach only to silver plans?

CSR could attach as easily to bronze as to silver, without increasing the subsidy level. The CSR subsidies are based on a plan's actuarial value (AV) -- the percentage of the average user's yearly medical expenses that the plan is designed to pay. Without CSR, silver ACA plans have a mandated AV of 70%; bronze, 60%.  Depending on income level, CSR raises the AV of a silver plan to 94%, 87%, or 73%.  Why could the subsidy not be available with a bronze plan, boosting AV to 84%, 77% and 63%? Or, if the subsidy needs to be a ratio of the unsubsidized AV, CSR could boost bronze AVs to 81%, 75%, and 63%. Or whatever, to make the subsidy cost the Treasury the same amount at different metal levels.

The change would cost the Treasury money only because, as of now, perhaps 10-15% of CSR-eligible buyers leave the benefit on the table. Legislators, like mail-in rebate designers, count on less than 100% takeup. But 100% takeup of CSR would be a policy win -- it would make medical care, you know, affordable for more people.

Letting CSR attach to any metal level would not only afford buyers more choice, which is not always a good thing, but more viable choices. As of now, bronze plans are generally horrible deals -- unless either you're wealthy enough to absorb $5,000 or $6,000 a year in medical costs without too much trauma (unlikely for CSR-eligibles unless they're young adults with affluent parents), or the plan in question offers substantial benefits (e.g, low copays for doctor visits and generic drugs) before the deductible is reached, as some but I think less than half do.

At present, an older low-income buyer often has to choose between an all-but-free bronze plan likely to do them very little good and a hard-to-afford silver plan that will put out-of-pocket costs within relatively manageable range. Letting CSR attach to bronze would add a really viable choice level for many buyers: a very low premium for a plan with an AV superior to that of silver plans unenhanced by CSR.

In an alternate universe, in which congressional reps and senators of all political persuasions were committed to making the law work better according to their political lights, the merits of amending the ACA as outlined above would make an interesting debate.  Conservatives love to complain that the ACA unduly constrains plan choice; this change would increase buyers' viable choices.

Attaching CSR to bronze plans* would make for more administrative headaches, for the federal government as well as for insurers. But it would be simpler for buyers. No one would have to choose to avail themselves CSR or be at risk of missing it. It would afford a more viable choice, as opposed to what's all too often a Hobson's choice, between bronze and silver.

* Attaching CSR to gold and platinum plans would not make much sense, as a) their premiums re almost by definition unaffordable to the CSR eligible and b) the top two levels of CSR give silver plans a higher AV than gold or bronze.

UPDATE, 12/7:  While from a broad perspective it's good news that only 20% of private plan buyers in the ACA's first open season chose bronze plans, and a still-lower percentage of CSR-eligible buyers did, a couple of caveats are in order.

First,some states had far higher percentages, e.g. Hawaii, 41%, Colorado, 40%, Washington, 38%. In Colorado, only 80% of buyers eligible for the highest-level CSR bought silver plans (AV 94%, for those under 150% FPL), and only 70% of those at the next level (AV 87%, for those under 150-200% FPL) bought silver.

Second, low-income buyers stuck with bronze plans keep cropping up in news account. I've taken issue with some that I thought lacked important perspective (New York Times here; Chicago Tribune here), but the tales of woe are real, and the exchanges could do more to steer CSR-eligible buyers to silver, such as default their search results to silver plans first, as the Connecticut and now Maryland exchanges do (Maryland's is now a clone of CT's). Also, many of these hardship cases involve people who are not eligible for CSR, or only for weak (AV 73%) CSR, for whom a bronze choice more often makes sense, but still may not fulfill their needs.

Finally, some of these news accounts are driven by community health centers, complaining that many of their customers hold bronze plans that provide little or no coverage before their $5-6k deductibles kick in. Here is one from  Modern Healthcare's Virgil Dickson, and one more from Kelly Schmitt of USC Annenberg's "Reporting on Health." Schmitt interviews Dan Hawkins of the National Association of Community Health Centers, who says:
...published reports indicate that of the more than seven million people who bought coverage on the federal and state exchanges, about 20 percent chose the bronze plans that include deductibles as high as $5,000 per person. Health centers are essentially subsidizing the bronze plans because these underinsured are counting on health centers for discounted care. (Another worrisome problem is that people may be delaying or forgoing care because of costs). Compounding financial strain for health centers is the fact that private insurance only reimburses them an average of about 56 cents on the dollar (compared to 81 cents on the dollar for Medicaid patients). As an unintended consequence of the Affordable Care Act, this costly trend has thrown the spotlight on the need for continued funding for health centers as they open their doors to a growing influx of underinsured and insured alike.  
Connecticut's exchange steers low-income buyers toward silver plans
Rational choice in the ACA market
In Mississippi ACA rollout, one large disaster, one small success
News from New York: Most low-income ACA plan buyers chose wisely


  1. Thanks Andrew.
    One quick question: you imply that bringing lower out of pocket limits to bronze plans would cost the Treasury money....
    Why is that? I think it would cost the insurance companies money. The insurers would have to pay claims sooner.

    In a perfect world, persons with the lowest incomes would have the lowest cost sharing and the lowest deductibles. Private insurance flips this relationship on its ear, over and over again.

    Medicare tries to navigate this dilemma by giving everyone a low deductible of $147 in Part B. Does this drive up the cost of Medicare? Sure it does. And it is by and large money well spent.

    1. The federal government reimburses the insurance companies for Cost Sharing Reduction -- that is, it makes up the difference between the deductibles and copays of the underlying silver plan and the deductibles and copays reset by CSR.

      I think that attaching CSR to bronze plans would cost the Treasury money simply because fewer CSR-eligible buyers would forfeit the benefit. That is, none would.

  2. Boy, this really shows how unaffordable health insurance has become, at least for anyone without employer assistance.
    To use blunt language -- the buyer needs a premium subsidy just to afford a crappy insurance policy, and then they need another subsidy when they actually have a large claim on the policy.