Donuts and AHCA plan design

Insurers can design plans under the AHCA and MacArthur constraints that will be attractive to most healthy people that they can underwrite. They will offer plans that are priced at the subsidy level in two basic configurations. A third design will be offered that is a risk attraction magnet. But let’s talk donuts first!

Andrew Sprung in 2015 was chasing Ambetter’s strategy. He notes that Ambetter’s plan design looked more like Medicare Part D with a low level benefit, a big gap and then catastrophic coverage than typically we see for major medical insurance.

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….
The Ambetter benefit structure could work out for some buyers. But anyone who runs into any substantial medical problem — a bone break, a lump discovered, an elusive digestive disorder — is likely to hit those high out-of-pocket maximums fast….

Healthy people will be targeted with two basic plan designs.

The first will be aimed at lower income but generically healthy people. It is the donut structure. The premium allocation will break down in the following manner: 20% or so to administration and profits, 20% to common, low cost, below deductible services, and then 60% to post-deductible services. The second will be aimed at higher income low expected cost buyers who actually will benefit from tax advantaged HSA’s where the plan offered will be a straight high deductible plan with an HSA.

But what does the first version mean?

I am using hypothetical numbers, but the benefit design would look something like the following: Primary care visits would have no cost sharing for Evaluation and Management codes, generic drugs that are on the big box retailers list of super cheap drugs (Walmart’s $4 generic list is an example) and one or two no cost sharing urgent care visits and free X-rays. Everything else would be applied to the deductible. The deductible would be $10,000 or more. The networks would be narrow so a minimally adequate number of specialists would be available with few appointments, and customer service will be pretty good. If there is still some money sloshing around, the insurer buys everyone a $10/month Planet Fitness or CRUNCH gym membership as a marketing/selection tool rather than health improvement tool.

This rough sketch of a donut design is attractive to the 50% of the people who use 3% of the healthcare resources in a given year. It gives them PCP coverage which they probably won’t use all that much, it gives them cheap generic drug coverage for that sinus infection that just would not go away. Most people who buy these plans will not spend much money out of pocket no matter what, so the super high deductible is minimally relevant.

There are a number of variants of this basic structure as networks can change benefit levels for a constant premium and different cost sharing structures can be used, but the basic donut design will be very popular for people who strongly believe they are very healthy and are cash constrained on first dollar expenditures.