Tuesday, October 27, 2015

Affordable underinsurance? That's where healthcare.gov's new total cost estimator may steer you

Buying health insurance is hard, experts tell us. Even highly educated customers have trouble weighing monthly premium vs. deductibles and copays - especially since many Americans don't know offhand what terms like "deductible" and "coinsurance" mean.  To help, many have called for a "total cost estimator" that will ask users about their current medical usage and then estimate what their total yearly costs are likely to be under each plan.

This year, healthcare.gov has delivered. The "Preview Plans and Prices" feature, which asks a handful of questions about age, income and household size before delivering price quotes, now includes a total yearly cost calculator. It's optional, easy to use, and only adds one question before showing plans and prices (two, if you count the question whether you want to use it).

I don't like it. At least, I don't like its prominent placement; I think it should be a Step 2 offering, after you see plans and prices. I fear it will make some people focus on the wrong number, and the wrong question.  It leaves out a core factor in the insurance equation: risk.

Take the case of a single 40 year-old man earning $17,000 a year in Las Vegas (gender and age affect the estimated medical cost calculus). Here's the cheapest bronze offering -- the first result the user (let's call him Vince) will see:

Other than the ACA's mandated free preventive care (a yearly checkup and screenings for things such as cholesterol, Diabetes, colorectal cancer, drug abuse and depression), this nearly-free plan provides no coverage at all until Vince has spent $6,850. The yearly cost estimator seems to assume one doctor visit in the year (other than the free yearly checkup mandated by the ACA), or perhaps one drug prescription, for which the plan holder pays full freight.  "Pay nothing, get nothing" would be a close-to-accurate translation.

Here is the cheapest silver plan available to Vince:

This plan is projected to cost Vince an extra $480 a year. That's not chump change on an income under $1,500 per month. As a "likely" cost differential, it may tip Vince toward selecting the bronze plan.  But if he does, his total out-of-pocket risk is $6,350 more than it would be with silver.

That might be okay if Vince is healthy and has at least tens of thousands of dollars in savings (or a parent who does).* But for most Americans with incomes in his range, a $6,850 deductible might as well be $6.85 million.  According to the Federal Reserve, nearly half of all Americans aren't able to handle an unexpected $400 expense without borrowing money or selling something.

Health insurance is about access to medical care, but it's also about risk mitigation, and "estimated total yearly costs" say nothing about risk. The worst auto insurance on the market will probably cost you less in a given year than adequate insurance -- but it may also leave you bankrupt if you injure someone. A plan with a $6,850 deductible will leave many Americans paying credit card debt for years if they break a limb or develop a lump in their thyroid (and that's assuming they're not balanced-billed for tens of thousands more in our predatory healthcare delivery system).

For buyers with incomes under 200% of the Federal Poverty Level (FPL), the choice between bronze and silver plans is made lopsided by Cost Sharing Reduction (CSR) subsidies, which are available only with silver plans. Without those subsidies, silver plans are mandated to cover 70% of the average user's annual medical costs (the so-called actuarial value, or AV), compared to 60% for bronze plans. Premiums are proportionate to that ten-point AV difference. But CSR subsidies raise the AV of a silver plan to 94% for those with incomes under 150% of the Federal Poverty Level (e.g., Vince) and to 87% for those in the 150-200% FPL range, rendering the value proposition lopsided.

Low income marketplace shoppers who buy bronze are leaving that valuable extra subsidy on the table. The more medical care you need, the more valuable it is, and the total cost calculator does reflect that -- if you define yourself as a likely heavy user, it shows lower total costs for the higher AV choice. What it does not calculate is the value of risk protection. Given the price of medical care in the U.S., anyone can become a heavy user in an eye-blink -- a broken ankle or an appendectomy will likely max out the bronze deductible.

It's a sign of the dysfunction of both the U.S. healthcare and political systems that the ACA marketplace offers low income people health plans with deductibles approaching $7,000. The ACA's best defense against such atrocious underinsurance is the CSR subsidy. But HHS does not seem to recognize that fact. CSR is not only hard to afford and hard to understand -- it's easy to miss entirely. Here, for example, is the screen that pops up after a user enters age, income, etc. in the "preview plans" application:

Why not just write the CSR explainer in invisible ink?

On several state-run exchanges, the "plan preview" feature will "default to silver" for users who enter an income that indicates that they'll be CSR-eligible. That is, such users will see silver plans first when they're shown available plans, rather than seeing them ranked by premium price.  Now that's a decision support tool that points CSR-eligible users** toward getting the most consequential decision right. And it works -- states that default to silver and otherwise signpost CSR adequately have higher CSR takeup.  But healthcare.gov still doesn't do it. Even those who indicate heavy medical usage on the total cost estimator first see plans ranked by premium.

Total cost calculators have been around for some time. They can be useful for people facing a menu of relatively fine-grained choices -- say, between a $30/month difference in premium vs. a $500 difference in deductible. Such choices are not so consequential -- you can play the odds and win. Ditto, for that matter, for really high deductible plans -- if you have the resources to cover a losing bet. It's really because CSR skews the ACA metal level choice -- and does so almost under the radar -- that cost estimators may prove more part of the problem than of the solution.

I don't want to overstate opposition to the total yearly cost calculator. In the right context, with the right caveats, it can be useful.  Healthcare.gov's calculator adjusts for age and sex -- usage estimates are higher in each category for women and older shoppers. But it's still a blunt instrument, to be used with care. I would emphasize CSR first, default users to silver with a clear explanation, and then offer the cost calculator as part of a "compare plans" tool. I would also include a warning/reminder for those who forecast light usage that medical costs can increase suddenly, without warning.

HHS and CMS seem unduly obsessed with premium price above all, however. Their marketing and messaging constantly emphasizes premiums under certain thresholds. For example, CMS's Marketplace Affordability Snapshot, released yesterday, leads like this:
The next Open Enrollment period for the Health Insurance Marketplace begins on November 1, 2015 for coverage starting on January 1, 2016. According to an HHS analysis, about 8 out of 10 returning consumers will be able to buy a plan with premiums less than $100 dollars a month after tax credits; and about 7 out of 10 will have a plan available for less than $75 a month
In fact, about half of marketplace customers can probably get silver plans, enhanced with CSR, for under $100 per month (about 63% of current enrollees are under 200% FPL, where the baseline silver plan costs about $120 per month). For the rest, HHS is effectively hawking catastrophic insurance here.  Affordable underinsurance! That's not the message I think they want.


* The marketplace does offer Vince a bronze plan that could be viable if he's healthy and has $6850 to risk:

This plan has significant benefits that kick in before the deductible, as some bronze plans do, and comes out only marginally higher in the yearly cost estimator.

** CSR-pointing is most important for prospective buyers with incomes under 200% FPL. In the 200-250% FPL range, CSR is so weak (raising AV just three points to 73%) that many users can rationally forgo it. In fact the California exchange only "defaults to silver" for users with incomes under 200% FPL -- for those in the 200-250% FPL range, it shows bronze plans first.

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