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.