Wednesday, April 01, 2015

Affordable health insurance vs. affordable health care

One of the flaws of the Affordable Care Act is that it partially (not entirely!) confuses affordable insurance with affordable health care.

On the plus side, for insurance purchase purposes, the ACA benchmarks affordability to silver-level plans and calibrates the out-of-pocket costs these plans impose on buyers to income, via Cost Sharing Reduction (CSR) subsidies, which raise the plans' actuarial value to 94% for buyers with incomes under 150% of the Federal Poverty Level and to 87% for buyers under 200% FPL.

On the minus side, CSR fades to near-insignificance at 201% FPL; silver plan premiums slope toward unaffordability for a lot of buyers somewhere over 150% FPL; and the ACA dangles cheaper bronze plans with deductibles north of $5,000 in front of low-income buyers, for many of whom many of those plans will do very little good.

Also on the downside, for the purposes of determining whether a person or family has access to "affordable" insurance (and so whether they are subject to the mandate to purchase it), the ACA benchmarks affordability to the cheapest available bronze plan -- which, again, is likely to have a per-person deductible and out-of-pocket maximum in the $5000-6,600 range. Some bronze plans offer some services, such as low-copay doctor visits or generic drugs, before the deductible is reached, but many (my spot-checks make me suspect most) do not. They do offer mandated free preventive services, but those are a patchwork.

For all practical purposes, many (I think most) bronze plans are just catastrophic insurance that will shield those buyers who have assets worth more than a few thousand dollars from bankruptcy. And their share of all so-called Quality Health Plans (QHPs) sold on the exchanges went up this year, from 20% in 2014 to 22% in 2015.  Among those eligible for CSR, available only with silver plans, 23% chose another metal level -- most of them probably bronze (gold and platinum plans accounted for 10% of enrollments and are probably concentrated more among buyers over 250% FPL),.

The drafters of the ACA apparently envisioned most QHP customers buying silver -- or at least most CSR-eligible customers. This year, the Congressional Budget Office dropped its estimate of the cost of CSR to the Treasury, in part because fewer eligible buyers than originally envisioned accessed it. In contrast, HHS and CMS today often write and speak as if they regard "affordability" as a function of premium alone. Their enrollment reports tout percentages of enrollees who bought plans for under $100 and under $50 per month -- and set those figures against the percentages of buyers who could have bought plans at those prices, as if paying more for silver and accessing CSR is some kind of mistake. Their marketing materials tout low premiums only. Meanwhile, HHS/CMS have never tracked the percentage of CSR-eligibles who buy silver plans.

A  GAO report on the affordability of health insurance released last week reflects a similar mentality. It is focused on who is and is not able to afford or willing to pay for "minimum essential coverage" as defined by the ACA -- that is, either employer-sponsored insurance that meets that standard or the cheapest bronze plan available on the exchange (for both, the key benchmark is an actuarial value of 60%).  I recognize that the report is tasked specifically on measuring access to minimum essential coverage as defined by the ACA, but is that the right focus? The report is packed with tables like this:

The report usefully spotlights groups that are not able easily to afford minimum essential coverage -- notably, older potential buyers modestly beyond 400% FPL, the eligibility threshold for ACA premium subsidies. To be fair, bronze coverage, if affordable, might be viable for people over 400% FPL -- decidedly better than nothing, at least. But the report does not address what level of coverage is appropriate for people at different income levels. For lower income people, "minimum essential coverage" may be "essential" largely for hospitals and other medical providers, who will get paid when people with such coverage rack up tens of thousands of dollars in medical expenses.

The GAO report does acknowledge that Americans with insurance may face very high out-of-pocket costs. But its brief discussion of this issue focuses mainly on the danger of out-of-network treatment-- not on the fact that too many QHP buyers may be subject to thousands of dollars of out-of-pocket costs before they get any costs covered at all,  even if they stay in-network.

Ultimately, two problems constrain (without negating!) the  ACA's effectiveness. First, the subsidy structure is too stingy to make healthcare really affordable for a lot of people with incomes over 200% FPL  -- and in some cases, lower -- who lack access to employer-sponsored insurance. Second, the law fails to give government the pricing power that would make a more generous subsidy grant affordable to taxpayers (at least by American standards). That is, the ridiculously high prices Americans pay for medical procedures, drugs and equipment render truly affordable healthcare unaffordable according to the nation's current standards of "affordable" taxation.


  1. This is a very good piece, and I hope I can start a discussion on it.

    Let me offer a couple of observations:

    1. A lot of Americans have the emotional feeling that "being insured" means you do not have to pay cash when you see a doctor. Anyone like me who grew up under generous Blue Cross plans is offended by co-payments and deductibles.

    This is not just the poor or the thoughtless. I once had to see a chiropractor when in great pain, and after the second visit he asked me for a check. I never went back. This is from a person who has had actuarial training and read Paul Starr's first books in the 1990's.

    This sense of entitlement (if you want to call it that) leads many of us to disparage bronze plans.

    2. There is another problem. I do not think that any insurance company can produce comprehensive low-deductible insurance for a premium of $200 a month (which is about all that a worker can afford if there is no employer assistance.) Medicaid does seem to cost about $250 a month for younger beneficiaries, but that is after drastic and unsustainable cuts in provider fees. Medicare is great but it costs almost $1000 a month for its older beneficiaries.

    If you ask a private insurer to come up with a plan costing $200 a month, the only way they can do this is with high deductibles. A deductible of $5000 means that about 80%-90% of plan participants will not file a claim during the year. That will leave money to pay the hospital bills of the few persons who do exceed the deductible.

    Say that you insure 100 persons at $200 a month. That brings in $240,000 a year. This is enough money to pay hospital bills for about 10 or 12 participants -- not even accounting for insurer overhead.

    2. I have read the summary of the free services that are supposed to be in a bronze plan. They are all screening tests. Once you are actually diagnosed with something, the deductibles kick in....

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