Wednesday, November 22, 2017

A Medigap for the Marketplace?

It's well known by now that Trump's cutoff of federal funding for Cost Sharing Reduction (CSR) subsidies in the ACA marketplace has had the paradoxical effect of making free bronze plans widely available to subsidy-eligible marketplace enrollees.

The blessing is something of a mixed one for many buyers with incomes up to 200% of the Federal Poverty Level (FPL), however. Silver plans up to the 200% FPL level come with strong CSR that reduces average deductibles to under $300 (for enrollees up to 150% FPL) or under $1000 (for those in the 151-200% FPL range). That's in contrast to bronze plan deductibles that average over $6,000.  Other out-of-pocket cost differences are commensurate. More than half of current marketplace enrollees have incomes under 200% FPL, and most can probably now find free bronze plans.

CSR was designed to make actual healthcare affordable to low income enrollees -- who, again, constitute more than half of all marketplace enrollees (and more than half of the uninsured; as of 2013, 55% of the uninsured had incomes under 200% FPL). $6,000 deductibles are not generally appropriate for low income people (or arguably, for almost anyone).

On the other hand, a benchmark silver plan for a solo buyer with an income of $24,000 just under 200% FPL costs $126 per month -- versus $0, in many cases now, for bronze.

Since CSR costs the enrollee nothing, CSR-enhanced silver plans used to be worth considerably more in absolute terms than bronze, providing more actuarial value for the buck. That's not necessarily true any more. And a fair number of bronze plans do not subject services such as doctor visits and generic drugs to the deductible. The yearly out-of-pocket maximum for a bronze plan, on the other hand, is $7,350 for an individual -- versus $2,450 for a CSR-enhanced silver plan for enrollees with incomes up to 200% FPL. The out-of-pocket maximum represents an enormous amount of risk for a low income person.

There is an existing market resource, however, that could give some enrollees in free or very cheap bronze plans significant relief from high out-of-pocket costs. That's so-called gap insurance, which offers first-dollar coverage for a range of expenses up to a limit of, say, $5,000 or $10,000. It's not available everywhere, coverage for preexisting conditions is excluded, and coverage is not comprehensive -- it's for named perils such as accidents and critical illness, as commenter Bob Herz cautions below [I have updated here to make those limitations clearer].  But for a healthy enrollee, plans of this sort may provide coverage up to the bronze out-of-pocket maximum and beyond. [Update, 11/23: Comment by Bob Hertz below is on point -- the policy featured below is for named perils only, e.g., accident, heart attack/stroke/"invasive"cancer, plus limited hospital indemnity.]

In Harris County, Texas for example, which includes Houston, a 40 year-old with an income of $24,000 can get a free bronze plan or pay $116 per month for cheapest silver. Here's the choice lineup:

Via the online commercial broker eHealth, the GAP Assurance Plan from National General Accident and Health is available in this area. $40 per month buys $5,000 of coverage, and $53 per month buys $10,000. The plan will pay up to limits ($5,000 or  $10,000) for accident or critical illness, with a $25,000 death benefit and $250/day hospital benefit.  That last benefit, while very limited as to cost coverage, is not limited to specific perils.

Louise Norris, co-owner with her husband Jay of a health insurance brokerage and a writer at and on her own blog, says that this plan "could really make sense for someone who qualifies for a free or nearly free bronze plan" -- at least for healthy people.

The quality and availability of plans of this sort varies widely. If the current rather anomalous market were to endure, however -- with its subsidy structure knocked somewhat out of whack by the pricing in of CSR -- a supplemental insurance market designed to work with cheap bronze plans could develop further.  An administration and Congress committed to sustaining and improving the current marketplace could try to encourage such a market ,and provide guardrails.
Update: Useful analogy from David Anderson:
I think that's gonna have to be my title (after "A Medicine for Melancholy) - done.

Update 2: Just the brochure warns, you have to read the bloody policy itself before biting. It's an unregulated market...

Update 3, 11/23: more mulling: by what logic would comprehensive gap coverage be priced below, say, the price difference between bronze and platinum ACA-compliant coverage? The answer would have to be exclusions for pre-existing conditions, and perhaps medical underwriting and increased age rating (which is very limited in the plan discussed above; coverage at age 27 is $32/33). If the coverage were comprehensive, even on those terms, it would cost a lot more. As of now, it's roulette with covered perils (with possibly decent odds depending on lifestyle and age).


  1. The concern with the gap policies, of course, is post-claim underwriting - but as it simply covers out of pocket expenses, the potential denial of benefit would not be catastrophic. It is the promise of coverage that makes ACA so valuable to any healthy person who is concerned about bankruptcy with an unexpected health catastrophe.

    Interesting blog - I had not heard about "gap insurance".

  2. The term "gap" is quite misleading. When people hear the term 'gap,' they picture a scenario where the bill for your heart scan or biopsy is $4,000 but your deductible is $5,000 so your 'gap insurance' comes to the rescue.

    Not so with National General (and other carriers in this market).
    These plans pay cash benefits only for accidents and for an actual diagnosis of cancer, stroke, heart attack, Alzheimer's, and a few other life threatening ailments.

    The vast majority of a bronze owner's out of pocket health care bills will not be covered by National General. Broken legs are horrible, but not that common.

  3. Thanks for that warning, Bob. The named perils covered could make sense in particular for older buyers, but the coverage is far from comprehensive.