Benefit cliffs in the ACA marketplace

Dave Anderson highlights an important weakness in the subsidy structure for the ACA marketplace. As income rises, the enrollee's share of the premium for a benchmark silver plan is subject to sudden and irregular bump-ups, which Anderson compares to jolts in marginal tax rates.  Take the case of a couple looking to buy a benchmark silver plan:

From $17,000 to$20,000 this couple pays an extra $2 per month for every thousand dollars more they earn a year.  Annually this is about a 2% marginal tax rate on the additional income.  And then there is a huge bump from $20,000 to $21,000.  The benchmark premium suddenly becomes $256 more expensive.  This is a 25% marginal rate...

And then the marginal rate drops again when the family increases their earnings from $21,000 to $22,000.  The marginal rate for this slice is now about 11%.  The marginal rate for couples earning under 300% FPL is in the mid-teens, and then there is a drop in the marginal rate to just under 10% for 300% to 400% FPL and then a potential massive spike as soon as someone earns over 400% FPL.

The spikes in out-of-pocket (OOP) costs this couple is exposed to as income rises are even more sudden -- and, I think, potentially damaging to family finances -- than the premium spikes. The main benefit cliff is formed by the sudden fadeaway of Cost Sharing Reduction (CSR) subsidies at 201% FPL, where the actuarial value of a silver plan drops from 87% to 73%.  CSR disappears entirely at 251% FPL, and the coverage offered by a benchmark silver plan with no CSR, which has an AV of 70%, is clearly underinsurance for those without significant financial resources.

Let's look at how exposure to OOP rises with income for ACA marketplace enrollees. To return to Anderson's couple: At an annual income of $24,000, their benchmark silver plan per-person deductible will likely range from $0-500, and their per-person out-of-pocket maximum wil be $2,600 (or less). At $25,000, deductibles will likely be in the $500-1000 range, with the same OOP max -- a not-too-sudden step-up. At  $33,000, however, the per-person deductible leaps to an average over $3,000, and the allowable per-person OOP max jumps to $6,300 per person. For a couple with an income exceeding $41,150, no CSR is available: the per-person deductible for a benchmark silver plan averages over $4,000, and the OOP max is likely to be the $7,900 allowable maximum, or close to it.

A recent Kaiser Family Foundation survey spotlights the impact of rising out-of-pocket costs on enrollees in employer-sponsored plans. The results indicate just how damaging the OOP costs to which most ACA marketplace enrollees with incomes above 200% FPL are subject can be.  Summarizing, Kaiser CEO Drew Altman reports:

Take people with employer coverage who have a chronic condition such as hypertension, asthma, a serious mental health condition, diabetes, heart disease or cancer. It’s not a small group; just over half of those with employer coverage say someone in their family is currently receiving treatment for one of these or another chronic condition. 

• 6 out of 10 people in this group report that they or a family member skipped or postponed medical care or prescription drugs they needed because of costs, or tried a home remedy instead.

• High deductibles can make things worse: Among those with chronic conditions whose deductibles are at least $3,000 for an individual or $5,000 for a family, three-quarters report skipping or postponing some type of care.

• About half — 49% — say they or a family member had problems paying medical bills or difficulty affording their premiums, deductibles or co-pays in the last year.

 About half of ACA marketplace enrollees are in high deductible plans as defined above by Altman. Those who are not wealthy must be counted among the country's legions of underinsured.