On average, ACA marketplace plans are gold equivalent

Kevin Drum has led me, indirectly, to an interesting fact about the ACA marketplace: the coverage in private plans sold there is not as skimpy as people tend to assume.

In a post published today, Kevin considers a Blue Cross Blue Shield analysis of their large ACA marketplace customer base. BCBS finds that marketplace enrollees on average are sicker and access more care than pre-ACA customers in the individual market, and also, to a lesser extent, than enrollees in employer-sponsored insurance (ESI).

Drum's response is basically hurrah -- people who were previously shut out of the individual market based on their medical history are now accessing the care they need (and insurers knew that they would be needier than existing customers in both markets; they just underestimated how much).

Drum notes that the health gap is much narrower between marketplace enrollees and those with ESI than between marketplace enrollees and those in the pre-ACA individual market. He then wonders:

Oddly, the BCBS report concludes that Obamacare enrollees used more medical services and ran up higher bills compared to those in employer plans. That's a little hard to make sense of, since Obamacare enrollees are no sicker than average and generally have higher deductibles and copays than people in employer plans, which should motivate them to use fewer medical services. One possibility is that this is related to heart disease, the one area where Obamacare enrollees really do seem to be sicker than average. Another possibility is that this is a one-time thing: lots of people had been putting off medical care, and when Obamacare kicked in they spent the next year or two making up for it.

Drum is not wrong in asserting that Obamacare enrollees on average "have higher deductibles and copays than people in employer plans" if you include those who buy ACA-compliant plans outside the marketplace, as the BCBS study does. Within the marketplace, however, it's only marginally true. And among the 83% of marketplace enrollees who receive subsidies, it's not true at all [updated 3/31 -- more below].

The average employer-sponsored plan, according to a Kaiser Family Foundation estimate from 2011, has an actuarial value (AV) of 82% -- that is, it is designed to cover 82% of the average enrollee's annual medical costs.  Five years later, it may be lower -- Kaiser reports rising deductibles and out-of-pocket costs every year in its annual Employer Health Benefits Survey.

The baseline AVs for ACA marketplace plans are 60% for bronze (held by 23% of all enrollees), 70% for silver (held by 68% of enrollees), 80% for gold (6%) and 90% for platinum (2%). Another 1% bought catastrophic plans, with an AV of 50%. That looks like skimpy coverage for sure.

In the 38 states using the federal marketplace HealthCare.gov, however, 59% of enrollees also obtained Cost Sharing Reduction (CSR) subsidies, available only with silver plans. Depending on the buyer's income, CSR raises the AV of a silver plan to 94% (for those under 150% of the Federal Poverty Level), 87% (for those in the 150-200% FPL range) or 73%  (at 200-250% FPL). While the percentage of enrollees accessing CSR is somewhat lower in the states running their own marketplaces, more than three quarters of all marketplace enrollees are in the states using HealthCare.gov.

We don't know exactly how many silver plan enrollees accessed CSR at each AV level. In the HealthCare.gov states, however, we do know the percentage of all enrollees at specific income levels (excluding about 7% who did not report income and so did not qualify for any subsidy). Those numbers make it possible to estimate the percentages of buyers for whom CSR raises AV to 94%, 87% or 73%. (Current enrollment stats from HHS are available here and here.)

In the Hc.gov states, 41% of enrollees who reported income had incomes under 150% FPL; 25% were in the 150-200% FPL range; and 15% were at 200-250% FPL. While those above 250% FPL don't qualify for CSR, 81% of all those who reported income do qualify.*

79% of CSR-eligible buyers selected silver plans and so accessed the benefit. Generally, the lower the income band, the higher the CSR takeup. If the income breakout for those enrollees who accessed CSR matches that of all enrollees at each CSR-eligible income level (and the CSR takeup rates are in fact higher at lower income levels, which access  higher AVs), then the overall AV levels for all enrollees on healthcare.gov look something like this:

Actuarial Value	% of Hc.gov enrollees
94 (Silver - CSR1	30
90 (Platinum)	1
87 (Silver - CSR2	18
80 (Gold)	6
73 (Silver - CSR3)	11
70  (Silver - no CSR)	12
60  (Bronze)	21
57 (Catastrophic)	1
79 (weighted avg)

UPDATE 7/12/2016: Per note #3 below, suggesting that the percentages at AV 94 and 87 should be bumped up a bit, today CMS released these figures, which bump the average AV up to 81.4%:

The average AV for a HealthCare.gov enrollee is just a point below that of a gold plan (80% AV) [per update above, actually a bit above].  And this estimate may be  conservative, since, again, CSR takeup is higher at lower income levels. Only 17% of silver plan buyers on the federal exchange ended up with the 70% AV often cited without qualification as the value for silver.

While 71% of all HealthCare.gov enrollees selected silver plans, 77% of subsidy-eligible buyers selected silver. The average AV among the subsidy-eligible is doubtless also higher than the overall average. Indeed, the meaningful distinction in terms of product obtained among enrollees in ACA-compliant plans is not so much on-exchange vs. off-exchange, but subsidized vs. unsubsidized [added 3/31].

What about the 24% of marketplace enrollees who bought their plans on the 13 state-run marketplaces? It's true that the percentage of bronze plan buyers was higher in the SBMs -- but so was the percentage of gold and platinum buyers. And in most of those states that provide their own detailed enrollment data -- including California and New York, the two largest -- silver selection among CSR-eligible buyers is generally higher than in the federal marketplace, or at least was in past years (2014 and 2015).

We don't have an income breakout for SBM enrollees, or a CSR total. We do have an overall metal level selection breakout for the SBMs, though. And my calculations for silver plan buyers at each income level on HealthCare.gov yield an overall average silver AV of 85%. While it's true that a lower percentage of silver plan buyers in the SBMs are likely CSR eligible,** it's also true that CSR takeup is higher (or was in 2014 and 2015) than in the federal marketplace.  Using AV 85% for silver in the SBMs yields this weighted average:

Actuarial Value	% of SBM enrollees
90 (Platinum)	5
85 (Silver)	60
80 (Gold)	8
60 (Bronze)	27
57 (Catastrophic)	1
79 (weighted avg)

Yup, it's the same as on the federal exchange.

Actuarial values of 60%, 70% and even 73% leave many marketplace plan holders on the hook for ungodly amounts if they need serious medical care. Marketplace coverage is skimpy for many at income levels above 200% FPL, where strong CSR phases out -- and for too many lower income buyers who select bronze. The marketplace is far from a coverage utopia -- particularly for those who earn too much to qualify for subsidies, and for 7-8 million buying ACA-compliant plans off-exchange.*** Networks of available doctors and hospitals are narrower on average than in employer-sponsored plans.

But as the BCBS lament indicates, and as various surveys of enrollees also indicate, marketplace coverage is rendering medical care accessible to millions. And for most if by no means all enrollees, it's providing coverage comparable to, and in many cases more comprehensive than, employer-sponsored insurance.

Update, 3/31: An afterthought: In the ACA marketplace, as a general rule, the lower the income group, the higher the average AV.  That's pretty much the inerse of the ESI market, where better paid workers get better coverage -- and where coverage for low income workers (100-200% FPL) fell off a cliff between 1997 and 2010 before partially rebounding since ACA enactment. ACA subsidies are thus well targeted, if too skimpy on the whole and particularly for shoppers with incomes over 200% FPL.

Update II, 3/31: Insurance professional Richard Mayhew at Ballon Juice writes that Kevin Drum underestimates the impact of the health and utilization differences between the individual and employment markets reported by BCBS: "differences of 10% of utilization for outpatient and medical professional claims is operationally significant. "

Update III: My next post compares average AV among buyers at different income group, and so different levels of subsidy. It also explains an update to my weighting of CSR recipients at different levels, since validated by the CMS analysis cited above, which pretty much exactly reproduces the results of the 3/31 post, using average deductible as a proxy for AV. In brief, I moved some enrollees from AV 73% to AV 87% and 94% because, as noted above, silver plan selection is much lower at the income level (200-250% FPL) where CSR weakens to almost nothing. That adds about a point to average AV in the marketplace, as the CMS chart inserted as an update above shows.
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*  Of the 81% of those who reported income who were in CSR range (under 251% FPL). 51% were under 150% FPL, 31% were at 150-200% FPL, and 18% were in the 200-250% FPL range. The percentages of total HealthCare.gov enrollees at each CSR level cited above are derived from taking these percentages out of the approximately 5.68 million who accessed CSR, and then taking those totals as a percentage of all HealthCare.gov enrollees. It breaks out like this (via rounded percentages of the total hc.gov enrollment of 9,625,982):

Hc.gov enrollees with CSR:    5.68 million
CSR buyers under 150% FPL 2.87 million
CSR buyers 150-200% FPL    1.75 million
CSR buyers 200-250% FPL    1.05 million

** The SBM states are wealthier on average, and all but one have enacted the optional ACA Medicaid expansion. That takes the lowest-income buyers out of the marketplace -- and those buyers are likeliest to select silver to access high-AV CSR.

*** As actuary Rebecca Stobb points out on Twitter, "off exchange more heavily Bronze (since not subsidized and no CSR incentive)".  As to how they affect the risk pool, Stobb adds, "my sense is newly insured in direct mkt. sicker - paying full price and selecting for broader networks not on-exch."