For me, donuts go to my waist.
But this is a follow-up to my earlier post on the distributional outcomes of different cost sharing types. There is a plan design that is becoming more common and that is the high deductible donut design. Andrew Sprung has been bulldogging this subject for a while so let him describe it:
One insurer, Ambetter, is pushing such donut hole coverage, and grabbing the key benchmark silver and cheapest silver positions in many markets. In those markets, Ambetter offers a half dozen silver plans that are all cheaper — often way cheaper — than the nearest competition, in many cases pricing competitors out for price-sensitive buyers. And price-sensitive buyers have been the majority on the exchanges, where the cheapest silver plans are the best sellers. Ambetter combines appallingly high silver deductibles with an unusually large set of services discounted before the deductible. In Chicago, for example, Ambetter’s cheapest silver plan has a $6,500 deductible and out-of-pocket (OOP) max for a single buyer who earns too much to qualify for Cost Sharing Reduction (CSR). For a buyer who qualifies for the weakest level of Cost Sharing Reduction, the deductible and OOP max are $4,500.
How can these bronze-levels deductibles be offered with a silver plan? By providing these benefits beneath the deductible…..
As Andrew notes, this is a bastard son of mini-medical plans and stop loss insurance. There are some low level benefits that the insurer covers, a big gap that the insurer won’t cover (the donut hole) and then complete coverage after the gap. It is similar to how Medicare Part D was originally set up.
What are the distributional impacts of this plan design?
Let’s go get our four fake people and work through their situations again:
No Use Nora — she uses her essential health benefit PCP and OB-Gyn appointment and gets a flu shot in October every year at work. Other than that, she has not used any medical services in the past three years.
Low Use Larry — He also uses his EHB, but he’ll go to the urgent care twice a year and he went to the orthopedist once this year as he tweaked his ankle hard. He had 5 physical therapy appointments and three cheap generic prescriptions.
Medium use Maura — She has well controlled Type 2 diabetes and her blood pressure is a bit higher than it should be. She’ll see her PCP for six sick visits per year and then a specialist once a quarter. Her prescriptions are a combination of low cost generics and three brand name drugs.
High use Harry — The past two years have not been good for Harry. He is still fighting cancer and the combination of chemo drugs and being worn down has led to a series of opportunistic infections. Every morning he wakes up, goes to the bathroom and then swallows eleven pills…..
Nora again is not kicking any money into the pool to cover the non-covered actuarial value as she is using no services. Larry has small co-pays for urgent care, specialist and physical therapy visits. His drugs cost him $30 for the year. His total out of pocket is about $350 for the year.
Medium use Maura is seeing $300 in co-pays for her doctor visits and probably $2,000 in drug co-pays for the year (3 brand @$50/scrip/month, generics @$15/scrip/month) Her total exposure is $2,300 for the year.
Harry is seeing a doc at least twice a month and is going into the hospital a couple of times per year. The first hospitalization blows through his deductible by day 3.
The donut hole design puts more risk and thus more costs on the heaviest and most expensive users of the system. That means more of the burden of covering the risk pool’s uninsured actuarial value falls on the chronically ill who tend to be poorer than average because it is hard to work at an individual’s highest and best levels when that individual is seriously ill. The design that Ambetter uses (and a few other insurers that I know of) hammers people for using a hospital or high end diagnostics. In any given year for the 18-64 year old population, not many people use high end services, so cost sharing would be extremely concentrated.
For people who are reasonably healthy, these donut designs look really attractive as long as they stay lucky/healthy. Most of their services are fairly cheap out of pocket and the premiums are slightly lower than they otherwise would be because anyone who is chronically ill and not extremely price sensitive will choose more traditional plan designs that feature a first service deductible design as the primary cost sharing feature.
Punchy
Actually, biologically, they go to your waste.
Richard Mayhew
@Punchy: Wow, shitty humours in #1… got to love the community here :)
Edward G. Talbot
I guess my question here is this statement: “The donut hole design puts more risk and thus more costs on the heaviest and most expensive users of the system.”
It’s possible that its true, but I actually don’t think I could make this conclusion with the data you have provided here. The heaviest and most expensive users of the system will always hit their deductible. So there’s not really added “risk”, this becomes a purely financial analysis. And to do it, you have to know the costs associated with the alternatives. As an example, my work offers a number of plans and the highest deductible plan is always the cheapest if you know you’re always going to hit the deductible. That may not be true in the example you cited, but it could be.
All that said, I have no argument with the idea that this type of plan results in undesirable outcomes. It kills the folks who are always close to hitting their deductible, who tend to be sicker (and therefore lower income). And it does to the benefit of the healthiest and youngest who roll the dice.
satby
Richard, your “people” examples have really helped me understand the different ramifications. Thanks. I know I speak for lots of lurkers too.
kc
Any comment on United Healthcare exiting the exchanges?
MomSense
The examples of the different types of health care users are very helpful.
Kylroy
@kc: My takeaway is that United Healthcare tried to buy a market by undercharging at the exchange launch, but found that folks didn’t stay when the inevitable catch-up rate increases happened. The same approach worked *really well* to pick up and later retain customers during the Part D launch in 2006 (which is the only situation remotely like the exchange launch that companies could compare to), so I can understand why they did it. But it folks are a lot more sensitive to price when the it’s a $500 health insurance premium instead of a $50 Part D premium.
Curious to know if Mr. Mayhew sees it the same way.
kc
My comment didn’t post, so let me try it again: Any thoughts on United Healthcare leaving the exchanges?
Richard Mayhew
@Edward G. Talbot: The heaviest users will always hit their deductible and OOP maxes. I agree with that. It is a question if they hit that limit in month 1 or month 2. Month 3-12 the cost sharing provisions are irrelevant to heavy users.
In a Silver pool, roughly 30% of the expected costs are borne by the individuals in the pool and not the insurer as a whole. Correct?
The question then is what is the amount of that uncovered 30% that each person in the pool will pay. Benefit design drives that allocation. Heavy Use Harry with $100,000 in claims will max out whatever limit and cost distribution system the pool operates under. The question is what is the limit?
A straight first service deductible that is all of the cost-sharing might have a $3,500 deductible that Heavy Use Harry pays out in January. A donut hole plan may have a $5,000 deductible that Heavy Use Harry hits in Month 2 so he is paying more and the low utilizers are paying less.
Richard Mayhew
@Edward G. Talbot: I probably should have changed risk to “cost”
that is a good point. The risk has already been incurred, now it is a matter of how that cost is paid for.
Richard Mayhew
@kc: I don’t have a lot of unique thoughts on UHC. They went into the Exchanges tepidly (sat out 2014, came in 2015) and their products that I’ve seen aren’t amazing. They are probably good in low competition regions where they were a credible #2 competitor but building membership and more importantly useful claims data is expensive, and if Risk Corridors are a fraction of projected learning cost losses, it is a tough sell to lose a lot of money in a market that is increasingly competitive with the hope that they can eke out decent profits three to five years from now.
Edward G. Talbot
@Richard Mayhew: I see that logic and I certainly agree that this sort of plan is the wrong direction for the system as a whole. I was thinking about it as if I were Harry – what plan would cost me the least? Presumably the premiums are lower for the $5000 plan than the $3500 plan. Are they $500 lower or $2000 lower? If the former then the $3500 deductible plan makes more sense. If the latter then the $5000 plan is cheaper and we could say that the $3500 deductible plan actually puts MORE strain on the heaviest users. I’m assuming for these purposes that copays, coinsurance,etc are all the same and the deductible is the only variable. Other differences would obviously impact the calculation.
In the example of a heavy user like Harry, risk doesn’t enter into it from his POV, this is purely a financial decision (including cash flow considerations).
PJ
Hi Richard,
I had Health Republic of New York as my insurer on a silver plan through the NYS Exchange in 2014 and 2015. As you know, they are going out of business at the end of this month (I can attest that their administration was initially incompetent), so I have had to select a new insurer. It seems to me that what one used to be able to obtain from a silver plan (low or no PCP visit co-pays and slightly higher monthly payments in exchange for a lower ($1000 – 2000 deductible)) is not longer available and can only be found in gold or platinum plans. In other words, the cost of health care in premiums, co-pays, and deductibles seems to have gone way up. Is this a fair assessment or just the result of carriers who were low-balling their costs exiting the market?
The Other Chuck
Do donuts go where whores go?
Richard Mayhew
@PJ: @PJ: I’m really not sure. The metal band’s were determined by running the benefit design through a CMS approved actuarial value calculator (link for one to play with for 2016 as a Macro enabled Excel file)
I think donut designs got popular which puffs up deductibles because more is non-deductible covered.
kc
@kc:
Oh, it DID post. Sorry, and FYWP.
Suzan
Richard,
May I drift for a question please? After I apologize for not reading your previous posts entirely, but to my credit, I read enough to come to you for help. Email argument with friends (liberals all) recently shifted to insurance companies going out of business and ending, for the time being, with the following question: “Either way, what is the possibility that ACA will implode next year and how will that affect the election?” Implode because there are no companies to provide insurance. Take a guess. Help me shut this jerk (my husband) down. (He’s only a jerk when we disagree which is not very often.) Much appreciate any thoughts from an expert.
Anoniminous
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