Email
From: Khati Hendry
To: Don McCanne
Date: Tue, May 1, 2012 at 10:56 PM
Subject: Re: qotd: Lack of retiree plans can cause job lock
Hi Don,
This article reinforces one of the things that really impressed me when I first moved from the US to practice in Canada 7 years ago–I started seeing all these patients who were retiring way before age 65.  What was up?  They didn’t all seem independently wealthy.  Some were taking up other avocations, running B&Bs, but others were, well, just retired.  Of course the big difference is that they don’t have to take into account health insurance.  They are covered working, retired, laid-off, in transition, in school, married, single, rich, poor–you understand completely.  What a difference it makes to a life when you don’t have the angst of health financial disaster looming, and you can make your decisions on all the other things important to you.
Cheers,
Khati
MiniProfile: Khati Hendry
http://futurehealth.ucsf.edu/Public/Leadership-Programs/MiniProfile.aspx?asuid=4863
qotd May 1, 2012: “Lack of retiree plans can cause job lock”
https://pnhp.org/news/2012/may/lack-of-retiree-plans-can-cause-job-lock

If you read Khati Hendry’s MiniProfile (link above) you will see that she is indeed an expert, but her credibility stems not just from what she has done in her career. Much more, it is her dedication to making the health care system work for her patients and for all patients that most qualifies her when she speaks out on health care justice.
For more on her views, this link provides access to a transcript of a radio broadcast featuring Dr. Hendry on “Demystifying the Canadian Health System”

By Claire Brunel
National Bureau of Economic Research (NBER), Digest, May 2012

Employees under the age of 65 have substantially higher turnover rates at firms that offer subsidized retiree health coverage than at firms that do not.

The strong link between health insurance and employment in the United States may cause workers to delay retirement until they become eligible for Medicare at age 65. However, some employers extend health insurance benefits to their retirees, and individuals who are eligible for such benefits need not wait until age 65 to retire with group health coverage.

In Does Retiree Health Insurance Encourage Early Retirement (NBER Working Paper No. 17703), authors Steven Nyce, Sylvester Schieber, John Shoven, Sita Slavov, and David Wise use employee-level data from 64 diverse firms that are clients of TowersWatson, a leading benefits consulting firm, to investigate the impact of retiree health insurance on early retirement. After controlling for individual characteristics and pension incentives, they find that employees under the age of 65 have substantially higher turnover rates at firms that offer subsidized retiree health coverage than at firms that do not. Subsidized retiree health coverage has its strongest effects at ages 62 and 63, resulting in a 21 percent increase in the probability of turnover at age 62 and a 32 percent increase in the probability of turnover at age 63.

Moreover, higher subsidy rates are associated with greater turnover than lower subsidy rates. For example, an employer contribution of 50 percent or more of the cost of health insurance raises turnover by nearly 34 percent at age 62, and by nearly 44 percent at age 63. The authors estimate that a subsidy of 50 percent or more lowers the expected retirement age by 9 months overall, and by more than a year for workers with 15 or more years of experience.

http://www.nber.org/digest/may12/w17703.html

NBER Working Paper – “Does Retiree Health Insurance Encourage Early Retirement?”:
http://papers.nber.org/papers/w17703

And…

Implementation of the Early Retiree Reinsurance Program

GAO (U.S. Government Accountability Office)
September 30, 2011

During the last decade the number of large employers offering health benefits to retirees – including early retirees not eligible for Medicare – has declined. Among all large firms that offered health benefits to active employees from 2001 to 2010, the percentage that offered health benefits to retirees decreased from 39 percent in 2001 to 28 percent in 2010. According to the Agency for Healthcare Research and Quality, individuals age 55 to 64 who lack health insurance are vulnerable to high health care costs associated with serious and chronic illnesses. The Early Retiree Reinsurance Program (ERRP) was established pursuant to the Patient Protection and Affordable Care Act (PPACA) to provide reimbursement to participating employment-based health plans. The reimbursements provided by the program are intended to cover a portion of the cost of providing health benefits to early retirees – individuals age 55 and older who are not eligible for Medicare.

The largest share – about 46 percent – of the $2.7 billion in ERRP reimbursements approved as of June 30, 2011, went to government entities. In general, this distribution of reimbursements is consistent with the provision of retiree health benefits in the marketplace. In particular, government entities are more likely than other types of employers to provide health benefits to their retirees. HHS projects that the $5 billion appropriated for ERRP will be expended by the end of fiscal year 2012 – before the January 1, 2014, end date for the program.

http://www.gao.gov/products/GAO-11-875R

Comment: 

By Don McCanne, MD

Job lock is one of the problems with using a system of financing health care that is heavily dependent on employer-sponsored coverage. Individuals who might otherwise consider other options to their current employment are locked into their jobs under the threat of losing their coverage if they leave. Amongst the forgone options, those who could and would want to retire early may have to wait until eligible for Medicare at age 65 if they have to give up their employer-sponsored plan.

There continues to be an erosion in retiree health benefits offered by employers, and this NBER study shows that it makes a difference. The data show that close to 10 percent of individuals at ages 56 to 64 will exit their jobs only if they receive a retiree health plan with an employer contribution of 50 percent or more.

The framers of the Affordable Care Act recognized this problem. Although there are numerous technical complexities, theoretically the state insurance exchanges would provide individuals not qualified for other programs with private insurance plans that were intended to be affordable based on generous pensions or based on income-indexed subsidies. Congress even authorized a transitional program – the Early Retiree Reinsurance Program – which would provide subsidies to encourage employers to continue coverage until the exchanges were up and running. Unfortunately this program will run out of funds by the end of this year.

Should we want people to retire early? With our high rates of unemployment, it would be great to open up employment opportunities for individuals desperate for work. Even if we return to a vibrant economy, many economists recommend that we still need policies to keep unemployment high enough to ensure a competitive labor market, lest the employers would have to pay higher wages or salaries for their employees. So we should establish policies that discourage early retirement? Nonsense.

Some of these economists have suggested that we should not ever allow unemployment rates to drop below 4 percent, in order to prevent labor costs from increasing. Yet these are often the same economists – and politicians – who helped to “end welfare as we know it,” and even now are recommending further reductions in unemployment compensation and in the supplemental nutrition assistance program (food stamps). These market ideologues are supporting an agenda of keeping them unemployed so we can get cheap labor, but starve the individuals we don’t need. Heartless.

If you read the excerpts from the GAO report above, you will see that the government has been more responsible than the private sector. The government is more likely to provide health benefits to their retirees, and more likely to use the Early Retiree Reinsurance Program to benefit them.

But we really don’t all need to become government employees to increase the likelihood of having health coverage should we retire early. We need only to establish an improved Medicare for everyone, then employment and retirement decisions would never have to be based on the availability of health benefits. Everyone would have health care – forever.

Providing Retiree Health Insurance Encourages Early Retirement

By Claire Brunel
National Bureau of Economic Research (NBER), Digest, May 2012
Employees under the age of 65 have substantially higher turnover rates at firms that offer subsidized retiree health coverage than at firms that do not.
The strong link between health insurance and employment in the United States may cause workers to delay retirement until they become eligible for Medicare at age 65. However, some employers extend health insurance benefits to their retirees, and individuals who are eligible for such benefits need not wait until age 65 to retire with group health coverage.
In Does Retiree Health Insurance Encourage Early Retirement (NBER Working Paper No. 17703), authors Steven Nyce, Sylvester Schieber, John Shoven, Sita Slavov, and David Wise use employee-level data from 64 diverse firms that are clients of TowersWatson, a leading benefits consulting firm, to investigate the impact of retiree health insurance on early retirement. After controlling for individual characteristics and pension incentives, they find that employees under the age of 65 have substantially higher turnover rates at firms that offer subsidized retiree health coverage than at firms that do not. Subsidized retiree health coverage has its strongest effects at ages 62 and 63, resulting in a 21 percent increase in the probability of turnover at age 62 and a 32 percent increase in the probability of turnover at age 63.
Moreover, higher subsidy rates are associated with greater turnover than lower subsidy rates. For example, an employer contribution of 50 percent or more of the cost of health insurance raises turnover by nearly 34 percent at age 62, and by nearly 44 percent at age 63. The authors estimate that a subsidy of 50 percent or more lowers the expected retirement age by 9 months overall, and by more than a year for workers with 15 or more years of experience.
http://www.nber.org/digest/may12/w17703.html
NBER Working Paper – “Does Retiree Health Insurance Encourage Early Retirement?”:
http://papers.nber.org/papers/w17703

And…

Implementation of the Early Retiree Reinsurance Program

GAO (U.S. Government Accountability Office)
September 30, 2011
During the last decade the number of large employers offering health benefits to retirees – including early retirees not eligible for Medicare – has declined. Among all large firms that offered health benefits to active employees from 2001 to 2010, the percentage that offered health benefits to retirees decreased from 39 percent in 2001 to 28 percent in 2010. According to the Agency for Healthcare Research and Quality, individuals age 55 to 64 who lack health insurance are vulnerable to high health care costs associated with serious and chronic illnesses. The Early Retiree Reinsurance Program (ERRP) was established pursuant to the Patient Protection and Affordable Care Act (PPACA) to provide reimbursement to participating employment-based health plans. The reimbursements provided by the program are intended to cover a portion of the cost of providing health benefits to early retirees – individuals age 55 and older who are not eligible for Medicare.
The largest share – about 46 percent – of the $2.7 billion in ERRP reimbursements approved as of June 30, 2011, went to government entities. In general, this distribution of reimbursements is consistent with the provision of retiree health benefits in the marketplace. In particular, government entities are more likely than other types of employers to provide health benefits to their retirees. HHS projects that the $5 billion appropriated for ERRP will be expended by the end of fiscal year 2012 – before the January 1, 2014, end date for the program.
http://www.gao.gov/products/GAO-11-875R

Job lock is one of the problems with using a system of financing health care that is heavily dependent on employer-sponsored coverage. Individuals who might otherwise consider other options to their current employment are locked into their jobs under the threat of losing their coverage if they leave. Amongst the forgone options, those who could and would want to retire early may have to wait until eligible for Medicare at age 65 if they have to give up their employer-sponsored plan.
There continues to be an erosion in retiree health benefits offered by employers, and this NBER study shows that it makes a difference. The data show that close to 10 percent of individuals at ages 56 to 64 will exit their jobs only if they receive a retiree health plan with an employer contribution of 50 percent or more.
The framers of the Affordable Care Act recognized this problem. Although there are numerous technical complexities, theoretically the state insurance exchanges would provide individuals not qualified for other programs with private insurance plans that were intended to be affordable based on generous pensions or based on income-indexed subsidies. Congress even authorized a transitional program – the Early Retiree Reinsurance Program – which would provide subsidies to encourage employers to continue coverage until the exchanges were up and running. Unfortunately this program will run out of funds by the end of this year.
Should we want people to retire early? With our high rates of unemployment, it would be great to open up employment opportunities for individuals desperate for work. Even if we return to a vibrant economy, many economists recommend that we still need policies to keep unemployment high enough to ensure a competitive labor market, lest the employers would have to pay higher wages or salaries for their employees. So we should establish policies that discourage early retirement? Nonsense.
Some of these economists have suggested that we should not ever allow unemployment rates to drop below 4 percent, in order to prevent labor costs from increasing. Yet these are often the same economists – and politicians – who helped to “end welfare as we know it,” and even now are recommending further reductions in unemployment compensation and in the supplemental nutrition assistance program (food stamps). These market ideologues are supporting an agenda of keeping them unemployed so we can get cheap labor, but starve the individuals we don’t need. Heartless.
If you read the excerpts from the GAO report above, you will see that the government has been more responsible than the private sector. The government is more likely to provide health benefits to their retirees, and more likely to use the Early Retiree Reinsurance Program to benefit them.
But we really don’t all need to become government employees to increase the likelihood of having health coverage should we retire early. We need only to establish an improved Medicare for everyone, then employment and retirement decisions would never have to be based on the availability of health benefits. Everyone would have health care – forever.

By Timothy Jost
Health Affairs Blog, April 27, 2012

Stop-Loss Coverage And Self-Insured Plans

On April 27, 2012, HHS, Treasury, and Labor published a Request for Information Regarding Stop Loss Insurance. The concern that drives this is the potential of stop loss-insured self-insured employer plans destabilizing the small group insurance market post-2014.

Employers have always had reasons to self-insure. Plans that are self-insured escape state regulation, including state mandates, and can be less expensive than commercial insurance for low-risk groups. The Affordable Care Act (ACA), however, increases these incentives dramatically. Insurers understand this, and are actively marketing “self-insured” products to small groups. These products offer administrative services and “stop-loss” coverage that shields small employers from the risk that would otherwise make self-insured status unattractive. They often have very low “attachment points,” which define when the employer ceases to bear risk and the stop-loss insurer takes over. Some stop loss plans are almost indistinguishable from high deductible health plans, except that the risk remains nominally with the employer rather than the employee.

Self-insured plans become more attractive to small groups under the ACA for two reasons. First, they are subject to fewer regulatory requirements than are insured plans. Whether in or out of the exchange, small group plans must offer the essential benefits package, include their members in a single risk pool, participate in the risk adjustment program, offer the same premiums without regard to health status, and offer the precious metal tiers. Self-insured plans are not, however, subject to these requirements.   Moreover, neither self-insured plans nor the stop-loss coverage that makes self-insurance possible for small groups are subject to the ACA’s minimum medical loss ratio requirements. Self-insured plans are also exempt from a fee imposed on insurers under ACA section 9010 and stop-loss plans do not need to justify unreasonable rate increases.

Second, once the ACA establishes guaranteed issue and bans health status underwriting and pre-existing condition exclusions for small groups in 2014, the risk to small employers of self-insuring will be dramatically reduced. Under current law in most states, a self-insured small employer faces the prospect of significantly increased stop-loss rates or lack of affordable access to conventional insurance if the group’s risk profile deteriorates (e.g. an employee or dependent gets cancer or needs an organ transplant). But, beginning in 2014, insurers (in or out of the exchange) will not be able to refuse to insure higher-risk small groups or exclude preexisting conditions, and will have to insure them at standard rates. SHOP (small employer) exchanges cannot have open enrollment periods for employers but must admit small employers whenever they apply for coverage. The threat of adverse selection to the exchanges could be substantial. Healthy small groups will be able to self-insure with stop-loss coverage and then leave that coverage and enter the exchange at standard rates the moment an employee or dependent suffers a serious illness or accident.

Without stop loss insurance, however, self-insured small group plans become much less viable. Few small groups can fully take on the risk of self-insuring without stop-loss. As of this point, stop loss insurance for small groups is not regulated at the federal level and largely unregulated at the state level. The term “self-insured” is not defined in the ACA, and the agencies clearly have the authority to define when a plan with stop-loss coverage is in fact so fully-insured that it ceases to be self-insured. In the request for information, the agencies are seeking to determine how common stop-loss coverage is, how it operates, how insurers decide which employers to insure and how much they charge, and how stop loss insurance is regulated. Presumably regulations will follow.

http://healthaffairs.org/blog/2012/04/27/implementing-health-reform-amidst-turbulence-federal-work-goes-on/

Comment: 

By Don McCanne, MD

The Affordable Care Act offers Mack-truck-size loopholes for small businesses that decide to self-insure – loopholes that defeat many of the noble intentions of health care reform. Timothy Jost describes these loopholes above.

In his full article available at the link above, Professor Jost also describes 1) several technical considerations for the medical loss ratio, 2) some of the complexities in determining whether individuals have access to employer-sponsored plans, which in turn can affect eligibility for exchange plans, and 3) technicalities that determine whether or not employer-sponsored plans meet minimum value requirements.

A quick read of the full article will reinforce two points that we already know: 1) the Affordable Care Act significantly increases the administrative complexity of health care financing when our system is already weighted down with expensive administrative excesses, and 2) the Act opens up further the opportunity for gaming the system thereby perpetuating and expanding the inequities and injustices of our uniquely American system that already uses gaming that drives up costs and diverts our finite funds away from health care.

As Professor Jost says, more regulations should follow. Great. Each loophole patch seems to create multiple additional loophole opportunities.

It is astounding that we continue to make such an intense effort to try to get this turkey to fly when we could have a health care system that would soar like an eagle. (If only metaphors could send us off in the right direction, but alas… )

Implementing Health Reform: Amidst Turbulence, Federal Work Goes On

By Timothy Jost
Health Affairs Blog, April 27, 2012
Stop-Loss Coverage And Self-Insured Plans
On April 27, 2012, HHS, Treasury, and Labor published a Request for Information Regarding Stop Loss Insurance. The concern that drives this is the potential of stop loss-insured self-insured employer plans destabilizing the small group insurance market post-2014.
Employers have always had reasons to self-insure. Plans that are self-insured escape state regulation, including state mandates, and can be less expensive than commercial insurance for low-risk groups. The Affordable Care Act (ACA), however, increases these incentives dramatically. Insurers understand this, and are actively marketing “self-insured” products to small groups. These products offer administrative services and “stop-loss” coverage that shields small employers from the risk that would otherwise make self-insured status unattractive. They often have very low “attachment points,” which define when the employer ceases to bear risk and the stop-loss insurer takes over. Some stop loss plans are almost indistinguishable from high deductible health plans, except that the risk remains nominally with the employer rather than the employee.
Self-insured plans become more attractive to small groups under the ACA for two reasons. First, they are subject to fewer regulatory requirements than are insured plans. Whether in or out of the exchange, small group plans must offer the essential benefits package, include their members in a single risk pool, participate in the risk adjustment program, offer the same premiums without regard to health status, and offer the precious metal tiers. Self-insured plans are not, however, subject to these requirements.   Moreover, neither self-insured plans nor the stop-loss coverage that makes self-insurance possible for small groups are subject to the ACA’s minimum medical loss ratio requirements. Self-insured plans are also exempt from a fee imposed on insurers under ACA section 9010 and stop-loss plans do not need to justify unreasonable rate increases.
Second, once the ACA establishes guaranteed issue and bans health status underwriting and pre-existing condition exclusions for small groups in 2014, the risk to small employers of self-insuring will be dramatically reduced. Under current law in most states, a self-insured small employer faces the prospect of significantly increased stop-loss rates or lack of affordable access to conventional insurance if the group’s risk profile deteriorates (e.g. an employee or dependent gets cancer or needs an organ transplant). But, beginning in 2014, insurers (in or out of the exchange) will not be able to refuse to insure higher-risk small groups or exclude preexisting conditions, and will have to insure them at standard rates. SHOP (small employer) exchanges cannot have open enrollment periods for employers but must admit small employers whenever they apply for coverage. The threat of adverse selection to the exchanges could be substantial. Healthy small groups will be able to self-insure with stop-loss coverage and then leave that coverage and enter the exchange at standard rates the moment an employee or dependent suffers a serious illness or accident.
Without stop loss insurance, however, self-insured small group plans become much less viable. Few small groups can fully take on the risk of self-insuring without stop-loss. As of this point, stop loss insurance for small groups is not regulated at the federal level and largely unregulated at the state level. The term “self-insured” is not defined in the ACA, and the agencies clearly have the authority to define when a plan with stop-loss coverage is in fact so fully-insured that it ceases to be self-insured. In the request for information, the agencies are seeking to determine how common stop-loss coverage is, how it operates, how insurers decide which employers to insure and how much they charge, and how stop loss insurance is regulated. Presumably regulations will follow.
http://healthaffairs.org/blog/2012/04/27/implementing-health-reform-amidst-turbulence-federal-work-goes-on/

The Affordable Care Act offers Mack-truck-size loopholes for small businesses that decide to self-insure – loopholes that defeat many of the noble intentions of health care reform. Timothy Jost describes these loopholes above.
In his full article available at the link above, Professor Jost also describes 1) several technical considerations for the medical loss ratio, 2) some of the complexities in determining whether individuals have access to employer-sponsored plans, which in turn can affect eligibility for exchange plans, and 3) technicalities that determine whether or not employer-sponsored plans meet minimum value requirements.
A quick read of the full article will reinforce two points that we already know: 1) the Affordable Care Act significantly increases the administrative complexity of health care financing when our system is already weighted down with expensive administrative excesses, and 2) the Act opens up further the opportunity for gaming the system thereby perpetuating and expanding the inequities and injustices of our uniquely American system that already uses gaming that drives up costs and diverts our finite funds away from health care.
As Professor Jost says, more regulations should follow. Great. Each loophole patch seems to create multiple additional loophole opportunities.
It is astounding that we continue to make such an intense effort to try to get this turkey to fly when we could have a health care system that would soar like an eagle. (If only metaphors could send us off in the right direction, but alas… )

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

Comment: 

By Don McCanne, MD

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.

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.