Sunday, November 18, 2018

How the ACA marketplace falls short of Medicare

When Americans turn 65, they're faced with a huge variety in Medicare offerings. In addition to or in place of the three parts of traditional, fee-for-service (FFS) Medicare, two of which require enrollee action to enroll, a typical enrollee may choose from among 10 distinct types of Medigap plan, each with a mandatory benefit structure, or from an average of 24 Medicare Advantage offerings that incorporate, with some tradeoffs, the benefits of  Medicare Parts A, B and D (hospital, medical  and prescription drug coverage). Low income enrollees may need often hard-to-find assistance, and a wheelbarrow full of financial documents, to access supplementary Medicaid or Medicare Savings Program (MSP) benefits that pick up all, most or some of their out-of-pocket costs.

Notwithstanding this Byzantine array of programs and choices, the generous national subsidization and fixed benefit structure of  FFM Medicare provide a stable backbone to the program. The bottom line is that 95% of the over-65 population has access to health insurance with an actuarial value a bit north of  80%  for something under $200 per month, with options that take AV up to 100% for up to about $400 per month. Step-ups for the wealthiest 5% of the eligible population are proportionate and affordable.  Roughly a sixth of some 45 million Medicare enrollees over age 65 are low income "dual eligibles" for whom Medicaid picks up much or all of out-of-pocket costs.

Many of those who don't qualify for dual eligible status struggle with medical bills, particularly as they age. But the Medicare guarantee does constitute heavily subsidized 80%-plus AV coverage for almost everyone over 65. The benefit is rendered at least marginally affordable to the federal treasury by government rate-setting, and payments to Medicare Advantage plans keyed to that rate-setting.

The ACA marketplace lacks Medicare's stability for three overarching reasons: benefits are underfunded, the benchmark against which subsidies are set is unstable, and insurers are left to negotiate their own rates, with network adequacy dependent on the rates they're willing to pay. The result is enormous variance and volatility in what's on offer to a given individual -- varying radically across county lines, and often changing radically year to year.

The ACA marketplace was no doubt intended to provide a coverage baseline and backbone something like Medicare''s. The marketplace's metal level structure, with fixed AVs at four metal levels and incomes tied to  a silver (70% AV) benchmark, with an  annual out-of-pocket maximum (MOOP) that can't exceed $7,900 for an individual in 2019, does provide some measure of stability, particularly in contrast to the lightly regulated garbage the Trump administration is now promoting in a parallel market of medically underwritten "short-term" plans that are no longer short-term.

Still, the marketplace poorly serves too many enrollees and prospective enrollees, on several fronts:

Inadequate subsidies. Subsidized enrollees pay between 2% and 10% of income for a benchmark silver plan -- 2% at 100% FPL, just shy of 10% at 300% FPL.  The 70% actuarial value of benchmark silver coverage for those who don't qualify for Cost Sharing Reduction (CSR) is just too low, and rising costs in a high-need risk pool render it more inadequate every year. For enrollees who don't qualify for strong CSR -- that is, those with incomes over 200% of the Federal Poverty Level (FPL), silver plan deductibles in the $4,000-6,000 range are not uncommon, generally with MOOP at or near the $7,900 maximum. It's true that a variety of services, often including doctor visits and generic drugs, are often not subject to the deductible -- but that also varies widely, and significant medical events are likely to subject enrollees to the high deductible.

While CSR generally keeps silver plan deductibles under $1000 for those with incomes up to 200% FPL ($24,280 for an individual in 2019), deductibles are rising for this population too, and can look proportionately daunting (e.g., $1,000 for those at the upper end, 150-200% FPL).

While Medicare provides the maximum subsidy to individuals with incomes up to $85,000, and still considerable subsidies above that level, ACA marketplace subsidies cut off at $48,560 for an individual in 2019, leaving many older enrollees in particular with astronomical premiums that vary wildly by region -- $1237 per month for cheapest bronze for a 60 year-old in Cody, Wyoming, $920 in Pottsville, PA, a mere $592 in South Orange, NJ. Somewhere over 5 million people are currently paying full freight in the individual market. About six million  people with incomes over 400% are uninsured (see p. 30 here).

Volatile benchmark. ACA premium subsidies are calculated so that enrollees pay a fixed percentage of income for a benchmark silver plan, which is the second cheapest silver plan on offer in a given rating area. For subsidized enrollees, premiums for all other plans vary according to their distance from the benchmark. As premiums have been volatile, and often vary widely among carriers, the choice menu often varies wildly from year to year, and an inattentive auto-renewal can cost a family hundreds of dollars per month if the upcoming year's benchmark plan significantly undersells their current plan.  A new entry can turn the whole market upside. If you like your plan be prepared to switch it next year should be the mantra for market enrollees.

Narrow networks. While commercial insurers generally pay providers rates far above those paid by Medicare, not all marketplace insurers do. The most successful have been those whose core business is managed Medicaid, and the rates they pay may be close to Medicaid rates. Many competitors have followed suit, and narrow networks have evolved as a marketplace norm. While healthcare economists are fond of narrow networks as a means of cost control, the tales I've heard from individual market participants indicate that generally those who can afford to avoid them do so. Ways to broaden provider access in the marketplace might include a) a strong public option, with rates tied to Medicare, and a requirement that providers who accept Medicare also accept the PO, or b) a cap in the rates marketplace insurers pay providers, with a similar requirement that providers accept insurers that pay the maximum allowed rates.

Guaranteed issue, essential health benefits, premium subsidies, CSR and MOOP are major social goods and an improvement over the pre-ACA individual market. But the marketplace would need a major overhaul to provide affordable insurance to all who lack access to other insurance.

Related: Think ACA marketplace coverage is complicated? Try Medicare

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