Saturday, February 25, 2017

Two comparisons of Price plan vs. ACA marketplace are roughly congruent

Late last year, I put forward a simple measure of the value (to the beneficiary) of a government subsidy for health insurance in various programs: multiply the percentage of premium covered by subsidy by the actuarial value of the insurance obtained. (A somewhat more streamlined version of the comparison is here at HIO).

For the ACA marketplace, I multiplied the average premium subsidy as reported by HHS (73% of premium) by the weighted average actuarial value obtained by subsidized marketplace enrollees (81%, my calculation) to come up with 59% total subsidized costs.

I then calculated that Tom Price's replacement plan, which has subsidies based on age not income, would on average cover about 40% of ACA benchmark silver plan premiums. I estimated that those flat subsidies would cover about 60% of premium for the cheaper plans to be offered in Price's deregulated market, to which I charitably ascribed an average AV of 60% -- coming up with a total average subsidized cost of 35% or 36%.  Of course, that's for all buyers, whereas only about half of current individual market enrollees are subsidized. Thus Price's plan radically redistributes subsidies from low-income toward higher income prospective enrollees.

Yesterday David Cutler, a Harvard health economist, John Bertko, chief actuary for Covered California, and Topher Spiro, veep for health policy at CAP, published in Vox a more nuanced and sophisticated comparison of the ACA-governed individual market and Tom Price's plan that ended up in pretty much the same place.

Instead of starting with subsidized ACA marketplace enrollees, Cutler et al took an estimate of average AV in the entire current individual market -- in fact, my estimate, 75% -- as a starting point. They pegged the average Price plan AV at 50%, however -- with good reason (I knew I was being charitable by pegging it at 60%). They also estimated that high out-of-pocket costs in Price plans would depress use of medical services by 5%. That left them with effectively the same out-of-pocket cost differential I found -- about 20 points (80% AV vs 60% in one case, 75% vs. 50% + 5 in the other).

Cutler et al found that on average, with a good deal of variation among age groups, total costs for an individual in Price's market would be $1744 higher than in the ACA marketplace.  If you plug my estimates of the share of total costs borne on average by enrollees in the two plans into their actual dollar cost estimates, you get a $1739 differential.

If I'm right that the average subsidized marketplace enrollee pays 41% of total costs, the average total cost of coverage for an individual in the marketplace is $7563 by the measure above. If Price enrollees' share would be 64%, that's $4840 -- nearly identical to the total cost calculated above.

In part, that congruence may be coincidence. Cutler et al used NHIS data on age and income to estimate premiums paid in the ACA marketplace; I used HHS ASPE enrollment data.  But I think that the equivalent basic differential in total costs subsidized accounts for the similar outcome.

One difference should be noted. I compared the benefits of subsidized ACA enrollees to those of Price plan enrollees; Cutler et al compared those of all marketplace enrollees. Since over 80% of  marketplace enrollees were subsidized, my AV calculations for the whole marketplace vs. the subsidized marketplace only differed by 1-2 percentage points (average AV for the unsubsidized is a shade under 70%).  It seems, though, that Cutler et al used my estimate of weighted average AV 75%, which is for all ACA-compliant plans on- and off-marketplace, but calculated costs (with subsidies built in) only within the marketplace (their estimates are for "costs under current plans offered on the ACA exchanges").

The fact that the Price subsidies are available to everyone, while the ACA subsidies are only available to about half of current individual market enrollees, would seem to be a strike against the ACA.  In fact, though, the skimpy Price subsidies would probably empty out the lower-income half (and more) of the ACA marketplace, effectively transferring their subsidies to people with incomes over 300% FPL (in many cases the phase-out point for ACA subsidies is that low or even lower). More than 60% of current marketplace enrollees -- about 1/3 of all individual market enrollees -- have incomes under 200% FPL. Most of them at present are enrolled in plans with AV 94% or 87% (thanks to Cost Sharing Reduction subsidies). They would find Price's AV sub-50% plans unusable (Cutler et al consider even 50% a charitable estimate).  So would the 12 million-plus Medicaid enrollees who would lose coverage under Price's repeal of the ACA Medicaid expansion.

I do think, though, that the ACA's political difficulties stem in large part from its steep "subsidy cliff" and that a universal cap on benchmark individual market premiums as a percentage of income, as proposed by Urban's Blumberg and Holahan and by Hillary Clinton -- would secure its acceptance as a middle class benefit.

For easy reference, here are the premium calculations, based on Kaiser's calculator for average benchmark silver premiums at different age levels, from my original post:

EPFA Premium Subsidies as Percentage of ACA Plan Premium & Cheaper Plan Premium

Age range 
plan premium
% of avg
ACA plan
2/3 of
ACA plan
% of plan
costing 2/3
ACA avg
$ 900
18-35 (27)
36-50 (43)
51-64 (58)

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