Consumers seeking insurance through state and federal exchanges are making tough decisions in regards to coverage options
I recently attended a strategy meeting with a group of senior executives from a large international healthcare manufacturer. The discussion immediately turned to the results of the Platinum, Gold, Silver, and Bronze competition among insurers for the sign-up of individuals under of the Affordable Care Act (ACA).
According to reports, the clear winner seems to be the Bronze insurance policies being purchased by those seeking insurance from either the state exchanges or the federal exchange. The question these executives were throwing around was, if the overwhelming majority of people were signing up for the cheapest available plan – Bronze level insurance with the highest deductibles – what might that mean for healthcare in the future?
Making sense of the numbers
First off, how many people so far have actually signed up for insurance on either the state or federal exchanges? As of April 1, 2014, reports are that nationwide over 7.1 million people have signed up. This is exceeds the number of individuals projected by the Congressional Budget Office (CBO) to be eligible to enroll in a marketplace plan. However, we still don’t know how many of these individuals have actually paid their premiums yet. Estimates are that about 20 percent of new enrollees have not paid their first month’s premiums – meaning the true number of people receiving coverage under the new law is still unknown.
According to a report released by PricewaterhouseCoopers’ (PwC) Health Research Institute, despite concerns that the ACA would cause the price of insurance premiums to skyrocket; these premiums have come in either lower or comparable for similar employer-based policies. However, consumers are experiencing severe sticker shock from the substantial insurance deductibles.
The PwC’s study noted that the average cost of premiums sold on the ACA’s exchanges is about $5,844 annually – or 4 percent less than the average cost of $6,119 for an employer-provided plan with comparable benefits. Looks like the exchanges are competitive, if not cheaper in some instances. So what is the big deal now? Aren’t more people covered? Isn’t this what the ACA was supposed to do?
People are discovering that the lower insurance premiums mean substantial out-of-pocket costs in terms of deductibles. According to the Wall Street Journal the deductibles are averaging $5,081 per year for the minimal coverage Bronze plans on the HealthCare.gov website in 34 of the 36 states on the federal exchange. That’s 42 percent higher than the $3,589 deductible individual plans in 2013. In looking at the potential impact, the Wall Street Journal further reported that for a couple or a family, deductibles may be as high as $12,700.
If you don’t qualify for a subsidy under the ACA, there is plenty of evidence that monthly premiums are going up if you had health insurance before. Some healthcare policy experts estimate this increase to be substantially higher than the previous monthly premiums. However, it is the new and higher deductibles that are stopping the newly insured in their tracks. How is this going to affect the behavior of the newly insured in the future?
Let us not shoot fish in a barrel at this point about President Obama’s often repeated promise, “You can keep your old health plan if you want to!” That has seemingly been dealt with by a heartfelt apology to the American public and a recent three-year extension of the deadline for everyone to convert to an “approved” plan. Everybody feel better now? It was not true when he said it and the consequences of this deception, intentional or not, have real policy repercussions – now and for the future.
A fellow health policy professional and vigorous proponent of the ACA characterized this development as making people “trade up.” The new policies mean “more benefits” and “better policies.” But what if you don’t want more benefits? What if you are happy with the quality of your old policy? I get the utility argument about spreading risk. Also, I can rationalize that people will eventually get better overall insurance packages. However, for many, those insurance policy packages still have a bunch of covered services that they really don’t want. It is not clear how many of those who have wrapped their arms around the legs of the ACA have thought how this may eventually play out. Because, a growing chorus of consumers are complaining they will be paying significantly more for less financial protection.
I bet we could slay a whole afternoon with a focus group of consumers who previously had insurance and now are facing increased costs for essentially less coverage. But there is another important consideration here – the comparison with employer sponsored insurance for those still lucky enough to have it. The average deductible is $1,135 for those who are still able to take advantage of health insurance plans through their employer. That is about an $8,865 difference for some now gaining insurance under the exchanges.
“Deductibles for many plans in the insurance exchanges are pretty high,” Stan Dorn, from the Urban Institute, recently told the New York Times. “These plans are more generous than what’s prevalent in the current individual insurance market, but significantly less generous than most employer-sponsored insurance.”
A study done by the independent research organization NORC at the University of Chicago, found that 65 percent of group plans offered by employers would fall under the gold or platinum category offered by the ACA. However, 84 percent of insurance plans purchased by individuals provide coverage equal to the Bronze level of the ACA or less.
The new healthcare law does provide deductible cost-sharing subsidies for individuals who earn up to 2.5 times the poverty level, which is about $28,725, for those who purchase one of the Silver plans, but there is no cost sharing available for Bronze plans.
“Consumers are giving up cost-sharing reductions of enormous value if they enroll in a Bronze plan because it has the lowest premium,” Dorn observed in the New York Times article.
Kitchen-table decisions will impact medical marketplace
What does this mean for the medical marketplace? It seems to indicate that many people, previously uninsured, will now be making a kitchen-table decision about actually using their insurance or not due to the high deductible in their Bronze level plan. Sure they have health insurance now! But what happens if the vast majority makes the economic decision not to use that insurance because the out-of-pocket costs are financially overwhelming?
Healthcare providers, manufacturers, and others will be rethinking their business model in response to this situation. This seems especially true for procedures which cost less than the deductibles in the Bronze plans. Further, if the business model has been dependent on attracting out-of-pocket dollars to encourage patients to trade-up for higher technology, won’t such trade-ups now face new financial disincentives? And, if technology driven companies determine the marketplace to be facing such powerful disincentives, won’t they likely be reconsidering future investments in research and development? With fewer research and development dollars being spent, what happens to the future pace of industry sponsored medical technology advances?
The ACA’s cap on out-of-pocket costs – $6,350 for an individual and $12,700 for a family – did away with some whopping deductibles in plans previously offered to people without employer-provided coverage. Deductibles as high as $10,000 for an individual and $30,000 for a family were features of policies sold on the individual market in one state just under a year ago, according to a report from the U.S. Government Accountability Office.
The deductibles for many low-cost marketplace plans are high compared to the average for people provided health benefits through their jobs. The average deductible for workers with job-based insurance is $1,135, according to the nonpartisan Kaiser Family Foundation’s 2013 annual survey of benefits.
So what happens in the future? Many middle-income families, who will not qualify for subsidies, will be financially hit the hardest. PwC researchers say if the price trend continues in insurance premiums, many employers may shift their employees onto the state and federal exchanges. Also, if deductibles in the overwhelmingly selected Bronze plans remain prohibitively high, the newly uninsured will likely forgo healthcare – just like they did when they didn’t have any insurance at all. Health insurance for the newly insured will be seen just like a catastrophic coverage policy – assuming a patient or their family can scrape together the deductible. On the other hand, manufacturers will likely be making decisions to reduce future research and development investments as high deductibles incentivize people to forgo care that insurance will cover.
For providers, it seems some hospitals and doctors across the U.S. have already announced they will not accept insurance provided by the exchanges because of low rates and more subsequent red tape. For those providers who will accept the exchange insurance, some will get left with more people showing up with new insurance coverage, but who also cannot afford the care they are provided because of the high deductibles.
The newest wrinkle for the effectiveness of the ACA roll out is the potentially destabilizing influence these hatefully high deductibles will have for the majority of Bronze level enrollees. The thing is called the Affordable Care Act. For many, it looks like it is not going to be so “affordable” after all.
Robert Betz, Ph.D., is President of Robert Betz Associates, Inc. (RBA), a federal health policy consulting firm located in the Washington, D.C. area. Additionally, Dr. Betz is an adjunct professor teaching at The George Washington University where he specializes in political science and health policy. For more information about RBA, visit www.robertbetz.com.