Health Affairs has an interesting article on actuarial value of insurance in the ACA.** I am not sure what I am taking from it as my reactions are muddled.
We simulated out-of-pocket spending for bronze, silver, or gold Marketplace plans (those having actuarial values of 60 percent, 70 percent, and 80 percent, respectively). We found that for the vast majority of consumers, the proportion of covered spending paid by the plans is likely to be far less than their actuarial values, the metric commonly used to convey plan generosity….
the average gold plan, an enrollee would have to spend approximately $21,500 before the plan covered 80 percent of spending, its actuarial value (Exhibit 1). For the silver and bronze tiers, the spending levels required for plans to reach their actuarial value were $19,500 and $16,500, respectively. Because more than 90 percent of people had annual spending of less than $15,000, for the vast majority of enrollees, the proportion of expenditures covered by a plan would have been much lower than its actuarial value.
My first reaction to the study is “Of Course!” Most people in most years don’t touch the healthcare system. The Agency for Healthcare Research and Quality (AHRQ) has 2015 data on per capita spending by percentile:
70% of people don’t spend $15,000 a year. 50% of the population can buy a used 1983 stick shift Volkswagon Rabbit whose reverse does not work for the same cost as their annual healthcare expenditure.^^^ The concentration of costs means most people are going to be a whole lot cheaper than average. This is further exacerbated as the fixed cap on out of pocket expenses means low utilizers need to pay a higher percentage of their total costs. Cost sharing choices have significant distributional implications:
Deductible plans favor the sickest people as the low utilizers pay for almost all of their care via deductible cash. That means the proportion of the pool’s individual responsibility amount is borne by healthy people.
Co-pay only plans favor people who use highly concentrated cost services. A co-pay does not differentiate between a specialist visit with a contract expense of $200 and a specialist visit with a contract expense of $600. It is the same fee. So people who use very costly services but only rarely are best off. People who use a lot of fairly low costs services on a regular basis pay more proportionally.
Co-insurance only plans favor low cost utilizers. They are not paying full price via their deductible, and unlike co-pays, the individual cost per unit matters.
At the same time, the paper makes a very good point:
the actuarial value, which is calculated at the population level, might not accurately represent the proportion of covered expenditures paid by a plan for any given enrollee. The distinction between population- and individual-level measurement, however, is often overlooked in the popular media and even in some of the information that insurers provide to consumers.
The aggregate story breaks down at the individual level. In order for an insurance pool to pay a half million dollar claim for an individual with a Silver plan that has a $5,000 cost sharing cap (99% individual actuarial value), a lot of people will see the insurer pay out a lot less than 70% of their actual claims. This is one hell of a confusing communication and choice problem that I don’t have any good answers for besides the simple fact that I need to think about this a lot.
** Polyakova, M., Hua, L. M., & Bundorf, M. K. (2017). Marketplace Plans Provide Risk Protection, But Actuarial Values Overstate Realized Coverage For Most Enrollees. Health Affairs, 36(12), 2078-2084. doi:10.1377/hlthaff.2017.0660
^^^ Why yes, I drove a rusted red VW Rabbit that I had to Fred Flintstone for 3 point turns during in high school. Shockingly few people ever wanted to enter the car.