California has a new bill in the state Senate SB-944 that intends to increase the actuarial value and thus lower the cost-sharing individuals face when they buy plans on the ACA marketplace. These enhancements will be funded by state dollars. State-funded AV bumps happen in a few other states. Below is the proposed new benchmark schedule:
|Benchmark Plan Actuarial Value|
This is not unusual. However there is a line in the draft law that I want to explore more:
The affordability assistance provided by the Exchange shall reduce cost sharing, including copays, coinsurance, and maximum out-of-pocket costs, and shall eliminate deductibles for all benefits (MY EMPHASIS)
Cost-sharing is still a part of these plan designs. There are lots of different ways to build a 94% AV plan. These cost-sharing decisions have distributional consequences. A 94% AV plan for a single individual in 2022 in California has a $75 deductible and an $800 maximum out of pocket. A deductible only plan that is also 94% AV can have a $500 deductible and a $500 maximum out of pocket. A 30% coinsurance for everything plan that has a 94% AV has no deductible and an $850 maximum out of pocket. If we make PCP, outpatient mental health and generic drug no cost-sharing, the maximum out of pocket increases to $1,000.
All of these are reasonable plan design decisions. But these decisions have different impacts on different classes of people. A plan with a deductible lowers maximum out of pocket cost. This is because for a given AV, a deductible captures spending from the infrequent utilizers who are pretty damn healthy. This chunk of money from people going to an urgent care or getting a single PCP visit and a generic drug prescription once a year is not huge as there is not a ton of utilization or money here, but it does lower out of pocket spending for people who have large medical expenses in a year. A deductible only design with no carve-outs is great for someone who knows that they have huge medical expenses in a given year as no matter what benefit design is presented to them, they will max out their cost-sharing, so a deductible only design lowers what people with very high medical expenses pay.
From a political economy point of view, the healthy and low utilizers grossly outnumber the people who are guaranteed a priori to max out their cost-sharing no matter what. From a “value of insurance” point of view, $0 deductible designs make people who are marginally attached to the market feel like they are getting something useful out of their insurance policy. It might build political support for the marketplaces. But there is a trade-off here in that $0 deductible designs are expensive for chronically ill individuals. And we should be aware of this trade-off.
Am I right in my understanding that the only reason why deductible only plans are cheaper for high utilizers is because the maximum out of pocket, premium and copay costs are set in such a way that they will spend more on them than the deductible level is set at? So if the deductible is really high or the other costs are sufficiently low, then there’s no cost savings?
Or is the argument here that the presence of those plan types helps even out the market for insurance so that the insurance companies can make things more affordable for high utilizers? In which case would further government subsidy to the insurance companies fix this?
There are access issues here too right? If you’ve got a 5k deductible, and you don’t have anywhere near 5k in resources and need an expensive procedure you’ve basically just got a cap on your maximum debt liability but you still can’t pay that much, so you’re facing a credit hit at minimum for ending up in collections. Same holds true for copays and premiums and everything else, but they play better with cash flow for a lot of people too, I think. Even if total spend is higher, not being exposed to large shocks can sometimes be better.
Dave, your posts on health care policy are an island of calm in a sea wracked by shit-storms.
Thank you for writing them.
@Eolirin: I will put up some examples tomorrow.
Holding the overall actuarial value constant across a population, deductible only plans means people with fairly low costs and utilization are paying for a bigger share of the population’s cost sharing obligations.
@oldster: I appreciate that. I felt odd this morning putting this up giving the WORLD AROUND US.
But I also know that on most things my knowledge and expertise is somewhere between the mean and the 1st standard deviation, so I have little useful to say, but this is something where I have something useful to say.
I feel for you, putting this up after all your hard work.
Some how it doesnt feel like the time.
I’m with oldster. Life goes on, people need health care, the mind needs a respite from the terrible stuff. Thanks, David.
@David Anderson: Okay, so it is a macro argument, I think I follow.
Would it make sense for policy to be shaped in such a way that the state carries a lot of the deductible burden, the way it’s currently carrying a lot of the premium burden, for lower income people, instead of just trying to eliminate them? Because it’s still a huge accessibility burden when people generally have limited to no savings.
Throwing chronically ill people under the bus is bad policy, as far as I’m concerned, so I guess my question is how do we deal with this from a policy perspective?
I never really understood this until I read your explanation here. Thank you.
This makes me wonder how countries with universal health care deal with this. No matter how the system is funded, you have to account for the costs associated with chronically ill individuals.