High actuarial value is better, right?
Well it depends.
It really depends on what you assess your prospective personal health risk to be and how much of a hit you can absorb. And from there, it is a matter of interrogating the benefit design of plans.
Let’s look at two Gold plans I designed using the 2019 actuarial value calculator to tease this out a bit.
| Plan A | Plan B | |
| Deductible | $500 | $2,000 |
| Coinsurance after deductible (you pay) | 30% | 0% |
| Maximum Out of Pocket | $6,000 | $2,000 |
| PCP Sick Visit | No cost sharing | Deductible applies |
| Generic Drugs | No cost sharing | Deductible applies |
What plan is more attractive if we assume same insurer with the same network?
What plan has the higher actuarial value?
Which plan is better?
Well that depends on your situation.
Since July 1, 2017, my personal healthcare utilization has been one $126 Primary Care Provider (PCP) visit and one $7.42 generic prescription. The combination of those two things cleared up an upper respiratory infection that felt like I was breathing through Styrofoam. And this is the type of utilization that I expect going forward for myself. If I had Plan A for the past year, I would just be paying my premiums with no cost-sharing for my utilization.
My mother, as I have mentioned before, is a medical zebra. She has had a series of 1 in a million conditions over the past decade. Last winter, she had a significant surgery for one of her zebra conditions. With pre-op treatments, prep, surgery, and post-op rehab, she is probably in the top 1% of medical spend for the past twelve months. Plan B is better for her as she would have met her out of pocket maximum under both plans A and B. Plan B has a lower maximum out of pocket amount that she would have to pay. It saves her $4,000.
Plan B has a slightly (<0.5%) higher actuarial value than Plan A.
Actuarial value is a decent approximation at a population level of how much an insurance company will pay for the group. It is a weak tool at the individual level.
Plan A will be attractive to people who self-identify as being likely to be low risk. The bet in Plan A is that the most common utilization that this population will use is low cost. A “free” PCP visit is in the realm of imagination for this population. For someone with a high probability of expensive medical conditions, a no-cost sharing PCP visit is irrelevant as they are going to be using enough other services that they will hit their out of pocket maximum. The challenge for these folks is if they get hit by a surprise, they’ll pay more in out of pocket expenses.
Plan B is attractive to people who either can not take a significant cash hit in case they got hit by a medical meteor or people who know that they will run up significant claims. The $2,000 deductible is also the out of pocket limit so it is a maximum ceiling on spending that is very predictable. Common utilization like a PCP visit for to address an illness will cost more as deductible applies but the total exposure is limited.
If both plans are offered in the same market, this is not a big deal. There may be risk adjustment transfers between Plan A and Plan B while premiums will be roughly the same. However if only one plan is offered, the low deductible, common services excluded from cost-sharing plan will produce a very different set of winners than a higher deductible with no other cost-sharing plan design.
The core insight is that if we hold actuarial value and medical pricing constant, lowering deductibles and excluding common, low cost services means the healthy benefit over the sick. The group has to pay the same (on first approximation) amount of cost-sharing but the burden is more heavily borne by the few high cost group members instead of being broadly spread among the mostly (and currently) healthy.
guachi
I really appreciate these primers. Before I was in the military I either didn’t have or didn’t use health insurance. Not that I am in the military I don’t pay for anything. Ever. So my personal interaction with health insurance has been zero.
Don K
This year I had a choice of two plans from my former employer (actually three, but we’ll make things easy here). Plan A had a premium of ~$350 per month with a $2,000 deductible and $3,400 OOP max. Plan B had no monthly premium, and both the deductible and OOP max were $6,100. Based on my experience of the last few years I knew I would easily blow through any conceivable OOP max (and in fact in April I had outpatient back surgery that cost around $20,000), so my calculation said that Plan A would cost me $7,600, while Plan B would cost $6,100, so Plan B it was. Easy choice.
Victor Matheson
So really what we need is someone to be able to go back and take another look at everyone’s health status and spending at the end of the year to see which plan would have been the right call. If that review showed that another plan would have been correct, this person would be empowered to retroactively change the plan.
We could call this person a Virtual Adjustment Reviewer. Or VAR for short.
NobodySpecial
This year I took advantage of Illinois’s Silver Load strategy to upgrade from Bronze to Gold. $500 deductible, $6k out of pocket max. Unfortunately, I’m looking at late year surgery for varicose veins. Unsure if I took the right plan.
David Anderson
@NobodySpecial: If you know you will max out this year, see if you can get any other problems taken care of as it will be no additional cost to you (besides rehab pain) this year compared to some time in the future.
ProfDamatu
Dead thread, but I have to say…I kind of wish these kinds of choices were even available in my area. For 2018, the lowest possible deductible on any plan offered in my area was, if I recall correctly, close to $2,000…for a Gold plan that also had an OOP max of…whatever the legal limit is. (Sort of the benefit design equivalent of shitposting, I think.) The lowest possible OOP max in my area, on the Silver plan that I ended up getting, was $5,400, with a higher deductible than the Gold plan. The whole situation is scary as hell for people with chronic conditions, or a medical history that requires a lot of monitoring. When you’re making $40k or less per year, that $5,400 out of pocket on top of premiums makes it basically impossible to save. It’s the sort of thing that can be sustained once or twice (provided it’s not two years in a row), but on an ongoing basis it’s a fucking disaster.
(I love the example you give, of a plan with a $2k deductible and no further cost-sharing. I had just such a plan, back in 2014, with a premium of about $350 a month. Unsurprisingly, that sort of plan was flatly unsustainable for the company in the long term; just a year later, they stopped writing health insurance altogether. Sigh.)
Edited to say that I totally understand that people like me are a tiny corner case – people with significant health care needs due to a past history or genetic diagnosis, but who are basically in good health, and who are either self employed or otherwise not eligible for ESI. We’re healthy enough that we can work enough that even if Medicaid is expanded, we won’t qualify, but not rich enough to afford an ongoing $7-10k plus per year in medical expenses. For those with no access at all, I’m sure folks like me get an eye roll at best. Sorry, sometimes I just have to vent. :-)
ProfDamatu
@NobodySpecial: Yeah, I second David. It’s why I had my prophylactic total hysterectomy (BRCA2 carrier here!) in December of 2016, rather than waiting until the following summer (which would have been dramatically better in terms of both my physical recovery and my work schedule). I had wanted to wait because earlier that year I’d had four rounds of chemo plus a double mastectomy/reconstruction, finishing in late June, and it’s a lot to recover from…but financially there was no choice. Do it in 2016, and have it be basically “free,” or wait for 2017 and be on the hook for (almost certainly) my $7k-plus OOP max. Yeah, like I said, not really a choice.