Wednesday, September 25, 2019

Unsubsidized? Buy bronze (probably)

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In a post yesterday, David Anderson clarified something I understood only vaguely: once a health plan enrollee meets her deductible, her incurred costs will reach the plan's annual out-of-pocket (OOP) maximum much more slowly in a plan with a high actuarial value (say, a plan covering 80% of costs) than in a low-AV plan (covering 60% of costs).

The ACA requires plans to cap enrollees annual OOP costs at no more than $7,900. Most plans at all metal levels have OOP caps over $5,000, with the exception of silver plans enhanced by strong Cost Sharing Reduction CSR) subsidies available to low income enrollees.  By the standards of the U.S.'s peer countries, that's a grotesque amount of risk for an average person to assume, but that's the world we Americans have made ourselves.

Anderson plots the rate at which an enrollee's total incurred medical costs will hit the maximum allowable OOP max in  bronze, silver, and gold plans with these features:

With those deductibles and coinsurance rates, here's the total billing in covered medical services that would bring an enrollee up against the OOP cap at each metal level.

Since the bronze plan's deductible matches the OOP max, the enrollee hits the cap when $7,900 in allowed costs has been billed, period. With the gold plan, the enrollee would incur $35,500 in costs before being personally on the hook for the maximum $7,900.  Once costs exceed the premium difference between bronze and gold plans, plus the $1000 gold deductible, the gold plan will start to close the gap and may potentially save the enrollee money. The silver plan would pay off if costs exceed a smaller premium differential plus the $2,500 deductible.

Brokers often advise unsubsidized enrollees to choose bronze plans, because a) one would have to incur significant medical expense to justify the premium difference between bronze and higher metal levels, and b) the OOP caps at higher metal levels are often only marginally lower, or not lower at all. That limits the bronze "risk" to the difference between the premium gap and the space between the deductible and the OOP cap in a higher metal level alternative.

Notwithstanding the broad expanse of incurred costs a gold plan will traverse before the enrollee hits the OOP max, it's still usually a good bet that an unsubsidized enrollee will come out ahead with a bronze plan. That's particularly true for older enrollees, as premiums rise with age (they're up to three times as high for a 64 year-old as for a 21 year-old), widening price spreads between metal levels. And people with incomes exceeding the subsidy threshold (400% of the Federal Poverty Level, or $48,560 for an individual/465,840 for a couple in 2019) tend to be older.

Using national average premiums etc. at each metal level, let's look at how the premium-vs.-OOP costs bet might play out for an unsubsidized 50 year-old.

Average Premiums, Deductibles, OOP Max, 2019
Individual market: 50 year-old enrollee
Metal level
OOP cap
Bronze-silv diff
$     90
Bronze-gld diff
Sources*: Kaiser Family Foundation (premiums and deductibles)
                 HealthPocket (OOP caps)

If these averages represented a buyer's choices in one market, a 50 year-old who bought a silver plan rather than bronze would only first start to save if her medical costs exceeded $5,930 -- the premium difference plus the silver deductible (assuming no used services were not subject to the deductible --though in fact,  silver plans often do exempt significant services to the deductible). At that point, incurred costs would be just $1,014 below the maximum that a bronze enrollee would spend if she hit the OOP cap (and stayed in network). The silver enrollee would still have coinsurance to pay between the deductible ($4,043) and the OOP cap ($6,863). This is plainly a bad deal compared to the bronze alternative  -- the brokers are right.

The gold plan enrollee would start out $2,940 in the hole relative to a bronze enrollee, via premiums, and would only start to gain back once the $1,581 deductible was reached. He would by then have spent $10,209, just $2,432 less than a bronze enrollee who maxes out the OOP cap.  He would climb the remaining $4,297 to his own (somewhat lower) OOP cap far more slowly than a bronze enrollee -- but if he gets a little more than halfway there, he loses.

It doesn't feel good to carry a $7,000 deductible, the norm for bronze plans. But it's the rational choice for most unsubsidized enrollees, for whom premiums constitute a really heavy burden.

Unsubsidized individual market customers are by definition relatively affluent, unless they're rendered subsidy-ineligible by factors other than income.** Yet individual market premiums are so high that premium plus OOP costs often constitute a major financial burden for the modestly affluent.  The burden is often compounded in that higher income enrollees tend to be older, and premiums rise with age.  Urban Institute scholars Linda Blumberg and John Holahan estimated in 2015 that individual market enrollees with incomes just over the subsidy threshold (400% FPL above) pay a higher percentage of income for healthcare than any other income cohort:

At incomes over 400% FPL, those percentages would be even worse now -- far worse, after the huge premium hikes of 2017-2018.

Individual markets vary enormously by state and county and plan. So do the price spreads between metal levels, as do deductibles, the range of services not subject to the deductible, and OOP caps. Silver loading,*** a pricing anomaly introduced into the individual market by Trump sabotage in 2018, sometimes renders gold plans cheaper than silver. But for most unsubsidized enrollees, it's still true that plan value is inversely proportionate to metal level.

* Note on sources: For average premiums and deductibles, I took the Kaiser Family Foundation's averages, which are weighted by enrollment. Kaiser premiums are for a 40 year-old; I multiplied by .398, a ratio derived from HealthPocket age-specific quotes, to get premiums for a 50 year-old. I used HealthPocket's average OOP caps because I couldn't find Kaiser estimates on this front.

** Some individual market enrollees with incomes in subsidy range (under 400% FPL) fall victim to the ACA's so-called family glitch:they are subsidy-ineligible if insurance for the employee alone is deemed affordable (i.e. offered at under about 10% of income), even if the family coverage on offer is unaffordable (say, requiring 20% of income).

*** Silver loading is the byproduct of Trump's October 2017 cutoff of direct federal reimbursement to insurers for the Cost Sharing Reduction (CSR) subsidies they are required to provide to low income marketplace enrollees who select silver plans. Faced with the cutoff at the brink of open enrollment for 2018, most state insurance departments allowed or encouraged insurers to price CSR into silver premiums only. Since premium subsidies, designed so that the enrollee pays a fixed percentage of income, are set to a silver plan benchmark, inflated silver premiums create discounts for subsidized buyers in bronze and gold plans.

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