Continuing Our Commitment to Consumers: Solutions That Will Enhance Affordability, Stability and Accessibility in the New Health Care Marketplace
America’s Health Insurance Plans (AHIP), June 2014
Enhancing affordability by creating a new lower premium Catastrophic Plan option
While millions of Americans have the peace of mind that health insurance provides, more can be done to maximize choice and affordability for individuals and families. As a solution to bring more families into the marketplace:
￼Health plans support the creation of a new, lower-premium catastrophic plan.
Such a plan would offer consumers the option of coverage that has lower monthly premiums but still provides the comfort of knowing that their costs will be limited in the event of a serious illness or injury.
Under the ACA, plans offered in the marketplaces fall into several metal-level categories, based on their “actuarial value” (AV) standard – essentially, what percentage of health care costs the policy would cover for a standard population. Plans are labeled as platinum (90% AV), gold (80% AV), silver (70% AV), or bronze (60% AV). A limited number of individuals — including individuals under the age of 30 — also have the option to purchase a catastrophic, high-deductible plan, although it has an actuarial value that is comparable to the bronze plan.
The new catastrophic plan would offer an AV just below the current minimum requirement, allowing for lower premiums, but would still include coverage of the law’s mandated essential health benefits, have no annual or lifetime benefit limits, and cover all preventive health services with zero cost-sharing for consumers. This would allow individuals and families eligible for premium subsidies to use that financial assistance to purchase the new plan, an option currently unavailable to consumers purchasing the ACA catastrophic plan.
We believe a new catastrophic plan would further the public policy goal of affordability and call upon policymakers to expand consumer choices by allowing this lower-premium option to be offered.
By Don McCanne, MD
One of the worst failures of the Affordable Care Act (ACA) is that, even with subsidies, the premiums and out-of-pocket expenses are unaffordable for far too many people. AHIP now proposes to make the premiums slightly more affordable by offering catastrophic plans with very high deductibles that would make accessing health care truly unaffordable for even more people (cost sharing subsidies are available only for silver plans, but coverage of the proposed catastrophic plans would fall even below the lowest-level bronze plans).
Why would they do this? Could it be that they want to capture a portion of the market of the 31 million people who will still remain uninsured after ACA is fully implemented?
Who would actually select these plans with very high deductibles but lower premiums? Those with very low incomes who would struggle even with subsidized premiums might choose these plans if they consider their subsidized premiums to be “all that they can afford.” These are individuals who would be much more likely to forgo essential health care simply because they couldn’t afford their portion of the deductibles.
Very high income individuals might select these plans to insure against catastrophic losses while deciding to self insure against more modest medical costs. The problem with this is that this is a form of regressive financing of the insurance risk pools. Since average health care costs are well beyond the means of middle income families to pay for them, wealthier individuals need to contribute more to the collective insurance pools (as they would in a single payer financing system). The AHIP proposal for low-premium catastrophic plans would allow them to contribute less than average instead.
For healthy middle-income families there is a preference for the tradeoff of lower premiums for higher-deductibles – an observation confirmed by behavior in the individual insurance market before the enactment of ACA. Families that remain healthy will come out ahead, but those families that later face significant health problems often find that they will face severe financial hardship as well – even bankruptcy.
So the insurance industry is taking a position that they can increase their market, that they will not have to pay for routine medical expenses, and that they can lower their medical losses by paying only for the comparatively few individuals with high medical expenses. Little does it matter that they have the health coverage function backwards in that the healthy and wealthy do very well but the sick and poor suffer. Limiting essential protection for the most vulnerable demonstrates again why the private insurance industry should be dismissed.
The insurance industry has been very successful in getting innovations that benefit themselves. This release by AHIP suggests that this is the beginning of another self-serving public campaign – this time to allow individuals to have (in marketing terms) “the choice of purchasing only the insurance they need” – a high-deductible catastrophic health plan.
Social solidarity takes another beating.