Tuesday, February 20, 2018

The catastrophic option in a degrading market for health insurance

Okay, so short-term health plans are back to not really being short-term -- or likely will be so, as of July. HHS has rolled back the Obama administration rule that limited such plans to three-month terms, a rule that only went into effect last April.  Once again, these plans -- which do not comply with ACA coverage rules and can be medically underwritten and exclude coverage for pre-existing conditions -- can be offered for up to a year.

So big deal, you might say. Short-term plans with year-long terms were available from 2014-2016 (and in the first quarter of 2017) and did not have a huge impact on ACA marketplace enrollment. Yes, but this time it's different, for two reasons. First, the individual mandate is effectively repealed as of 2019, so people need not obtain ACA-compliant coverage. Second, premiums in the ACA-compliant market have skyrocketed in the last two years (thanks largely to Republican sabotage), so more people are priced out. Louise Norris's analysis strongly implies that HHS is lowballing projected enrollment with its estimate of 100-200,000.  See Louise's post for a thorough overview of how short-term plans work and who's likely to buy them.

Short-term plans can be very cheap, and coverage can be very limited (especially if you have a serious pre-existing condition, which will be excluded). ACA-compliant plans, on the other hand, can be astronomically expensive if you're not subsidy-eligible, particularly if you're in your late fifties or early sixties.

As the individual market for health insurance fractures, I want to take a look at one tweener market that may help a few people navigate between the Scylla of unaffordable coverage (say, $1,000 per month for a solo plan with a $7000 deductible) and the Charybdis of unregulated coverage that may exclude, say, drug coverage or pregnancy, cap total coverage, and be medically underwritten.

The tweener I have in mind is catastrophic coverage. By ACA design, it's for people up to age 30 only. But there's an exception that's grown large in the last two years in particular: older people for whom coverage is deemed unaffordable, i.e. for whom the cheapest bronze plan available costs more than 8.05% of their income. These days, that includes large numbers of older prospective enrollees -- since premiums for a 64 year-old are three times as high as for a 21 year-old. If the cheapest bronze plan costs a sixtysomething $670 per month -- not uncommon -- she's exempt from the mandate if her income is under $100,000.

If you're, say, 62 years old and your income is $50,000 (a couple of thousand over the subsidy threshold), catastrophic coverage is likely to be available to you --  though you have to apply separately for it, and wait for a determination. It's no panacea. The deductible is $7350, and nothing except the ACA's mandatory free preventive services is available before the deductible is reached. For people with reasonably substantial assets to preserve, though, who won't be broken by a few thousand dollars of needed medical care, catastrophic coverage can be a viable alternative to bronze or silver.  A few examples:

New York is the most anomalous market for catastrophic coverage. That's because the state prohibits any age rating -- so in fact, unsubsidized coverage for older enrollees is a relatively good deal. compared to other states (and a relatively bad deal for younger enrollees). The cheapest bronze coverage for zip code 10463 in the Bronx, for example, is $416 per month, with a $4,000 deductible and a $7150 yearly out of pocket maximum (MOOP). Catastrophic is much cheaper yet -- I gather because insurers de facto age-rated it, as most enrollees are under 30.   It starts at $171 per month, with a mandatory $7350 deductible and MOOP.  That the case regardless of the applicant's age.

By any standard, $171/month is not bad for catastrophic coverage for a 60something. But in NY, because bronze coverage is relatively cheap for an older enrollee, fewer of the subsidy-ineligible over age 30 will be eligible than elsewhere. Eligibility for catastrophic coverage goes up to an income of about $62,000 in New York for a 62 year-old.

The discount is more modest in my own zip code, 07079, outside of Newark, NJ. Here, bronze coverage for a 62 year-old starts at $723 per month, with a deductible of $3000 and a MOOP of $6550 (like New York, New Jersey has relatively low standardized deductibles). No services except preventive care/screenings are available before the deductible kicks in. Catastrophic coverage is available for $519 per month. As everywhere, deductible and MOOP are $7350.

If my wife and I lost employer-sponsored coverage, I would do the catastrophic (we're not 62 but we're getting there). We'd be in hold-our-breath till Medicare territory. If one of us got cancer or had a heart attack, $7350 wouldn't break us. I'd be more worried about staying in-network  - and that's another story.

Neither New York nor New Jersey allow short-term plans. In Lincoln, Nebraska, however, our unsubsidized 62 year-old would have a three-cornered choice  -- none of them particularly good. Cheapest bronze would set her back a cool $1092 per month -- with no services available outside a $6000 deductible. A slightly more expensive bronze plan, at $1144 per month, does have doctor visits and generic drugs not subject to the deductible. Catastrophic coverage is available at substantial savings, $809 per month.

And then there's the short-term market....Pivot Health sells a 360-day plan in Lincoln for $176 per month to our 62 year-old. I assume that's four 3-month plans strung together, as the new rules are not yet finalized or executed, but the summary doesn't say so. It lists a $10,000, and, again, I would think that would have to reset every three months.  The plan has a $500,000 cap on coverage. It doesn't cover prescription drugs. Pre-existing conditions are excluded. Cancer coverage is excluded if the cancer "begins" within 30 days of obtaining coverage. Hospital coverage has a $750 deductible on top of the $10,000, and extended coverage of just $150/day for up to 60 days.

This is very uncertain coverage. It provides some protection for costs between $10,000 and $500,000, which is not worthless. It can be combined with cheap "gap" coverage, itself riddled with holes, but offering first-dollar coverage for, say, accident and critical illness (that gap coverage could also be combined with ACA marketplace coverage).

Fewer than 1% of ACA marketplace enrollees selected catastrophic coverage in 2017. It was designed to be on offer to young buyers only; it makes even potential sense only for the unsubsidized; and in most markets, for young people, it's not much cheaper than bronze coverage, if it's cheaper at all. As the pool of potential older enrollees who are exempt from the mandate has grown, however, it has become at least a potentially (relatively) viable option for some older prospective enrollees with incomes over 400% FPL.  If HHS wants to punch one more hole in the marketplace risk pool (catastrophic enrollees are pooled separately), it could smooth the verification process for enrollees over age 30 whose incomes qualify them.

1 comment:

  1. Thanks as always for your thoughtful posting.

    I have been up close and personal with short term insurance, both selling it and buying it for my wife for five years between her ages 60 and 65. (I bounced her around to different carriers.)

    This saved us thousands of dollars versus unsubsidized ACA plans, and in this sense I did the responsible thing. She had no claims so the short term plans were never tested.

    The great Uwe Reinhardt summarized the problem as follows:

    Sick people cannot pay their own health care costs. The question is how best to help them meet those costs.

    The ACA 'solution' was to double and triple the premiums paid by the healthy people in the individual market, i.e. community rating.
    It is not surprising that people hate this tax and try to get around it.

    A better solution would be to take up the sickest persons into Medicare or Medicaid, and thereby spread the tax burden much more widely.

    This would not be easy though. The same persons who want the cost savings that come from health underwriting also resist paying any extra taxes for Medicare or Medicaid.