Patient Cost-Sharing Under the Affordable Care Act

Kaiser Family Foundation
April 2012

To provide a more tangible picture of what coverage people would be required to buy, the Kaiser Family Foundation commissioned Aon Hewitt, a prominent benefit consultant, to estimate dollar values for several illustrative cost-sharing structures for non-group bronze and silver level plans when the ACA is fully implemented in 2014. Bronze plans are the least comprehensive of the four tiers, and represent the minimum coverage people purchasing non-group coverage could buy to satisfy the individual mandate. Silver plans are likely to be the most common level of coverage because premium tax credits are based on silver plan premiums and only people enrolled in silver plans will be eligible for cost-sharing subsidies.

These estimates update previous work and better reflect the federal guidance on essential health benefits and actuarial value.

We present two illustrative cost-sharing designs that were applied to each tier: one with a deductible and 20 percent patient coinsurance up to an out-of-pocket limit of $6,350 for an individual, and a second with a smaller deductible and higher patient coinsurance of 40 percent up to the same out-of-pocket limit. The deductible and coinsurance were assumed to apply to all services except preventive services, which are available under the ACA without patient cost-sharing. This means that for most services covered by the plan under these designs, the patient would pay all of the cost until the deductible is reached, and either 20 percent or 40 percent (depending on the option) of any additional costs until total patient cost-sharing reaches the out-of-pocket limit. Under the ACA, out-of-pocket limits for health plans are subject to the limit that currently applies to health savings account-qualified health plans, which is $6,050 for single coverage in 2012, and we estimate it to be $6,350 in 2014.

Discussion

The ACA seeks to standardize coverage options available in the non-group and small group markets, making it easier for consumers to compare plans and focusing competition on premium levels.

Coverage with cost-sharing levels comparable to current employer-based plans will be available through gold (actuarial value of 80 percent) and platinum (actuarial value of 90 percent) plans. The estimated actuarial value of typical employer-sponsored coverage is over 80 percent, with coverage offered by small employers generally less comprehensive.

However, the minimum coverage people will be required to buy starting in 2014 will have much higher cost-sharing than typical employer-based coverage and than the average purchased now in the non-group market. With standard 20 percent coinsurance, a bronze plan would have an estimated deductible of $4,375 for a single individual and double that for a family. This compares with an average single deductible of $2,498 in 2010 in the non-group market and an average of $675 in employer-sponsored PPO plans with deductibles in 2011. Deductibles in employer plans paired with tax-preferred savings accounts averaged $1,908 in 2011.

With much of the controversy over the ACA focusing on the individual mandate, it is noteworthy that the minimum coverage requirement is for insurance that is significantly less generous (and with a lower premium) than what most people have today. It is a level of coverage that most would consider catastrophic, providing protection in the event of an expensive illness while subjecting routine expenses (except for preventive care) to a relatively high deductible.

People will have the option of buying more generous coverage than the minimum required, and lower-income enrollees will be eligible for cost-sharing subsidies that decrease their out-of-pocket costs. But, some may still find themselves with insurance that requires substantial cost-sharing.

http://www.kff.org/healthreform/upload/8303.pdf

One of the major flaws of the Affordable Care Act is that underinsurance will become the new standard for health insurance in the United States. This new analysis demonstrates how the most common plans that will be purchased in the state insurance exchanges will fall well below the coverage that most people have today.

The cheapest plans in the exchanges – bronze plans with an actuarial value of 60% (patient pays an average of 40% of covered costs) – will have deductibles of $4,375 for an individual ($8,750 for families) with coinsurance of 20% (the patient pays 20% of the amount over the deductible). The deductible can be reduced to $3,475 for an individual but then the patient faces a staggering coinsurance of 40%.

Because of the availability of income-indexed subsidies, it is likely that silver plans with an actuarial value of 70% will be the most commonly selected plans. These are still well below the typical employer-sponsored plans which have an average actuarial value of 82%. The deductible for the silver plans would be $2,050 for an individual with a 20% coinsurance rate. The deductible could be reduced to $650 but, again, the coinsurance rate would increase to 40%.

Subsidies would assist those with lower incomes, but for this population even the most modest out-of-pocket cost sharing expenses can create financial barriers to care. As income increases, the subsidies diminish and eventually phase out altogether. The 2014 limit for maximum out-of-pocket spending will be $6,350 for an individual or $12,700 for a family (on top of the portion of the premium that that must also be paid). These income-adjusted increases in cost sharing will still be excessive for most individuals and families with significant health problems and with all of the other financial problems that often are associated with ill health.

This is what we mean by underinsurance. The new standard plans to be offered by the state insurance exchanges will not offer enough protection to prevent financial hardship for those with health care needs.

A properly designed single payer system would remove all financial barriers to essential health care services for everyone. The Affordable Care Act won’t do that.