Less coverage, higher out-of-pocket costs not the answer to rising Obamacare premiums

Is a copper, iron, or chrome policy destined for sale on the Obamacare insurance exchanges? They might be as Congress looks for a way to make the Affordable Care Act (ACA) work better. Recall that the standard offerings right now are gold, silver, and bronze plans with each providing a different level of benefits. Gold plans cover 80 percent of someone’s medical costs; silver, 70 percent; and bronze, 60 percent. There are also platinum plans that take care of 90 percent of expenses, but many insurers don’t sell them because they are pricey and likely to attract customers who have serious health problems. Given how shaky some of those insurance company risk pools have been, that’s the last thing carriers want.

Last week the idea of policies with skimpy benefits and more out-of-pocket costs again surfaced in Congress when Tennessee Sen. Lamar Alexander floated the idea of copper policies that most likely would cover fewer medical expenses – perhaps only 50 percent – and might not offer a full range of benefits now mandated for Obamacare-compliant policies. They might, for example, not cover mental health treatment or prenatal care, and would probably come with high deductibles, high coinsurance, and large copays.  (This year the maximum a family has to pay out of pocket is $14,300 and an individual $7,150.) 

The idea, though, is to use the carrot to draw people into the market, give them insurance that doesn’t cover too much, maybe offer cheaper premiums, but will almost certainly leave them with huge out-of-pocket expenses if serious illness strikes. A few years ago the consulting firm Avalere Health estimated premiums might be 18 percent lower, enough of an enticement some policymakers think will bring younger, healthier people into the risk pool.

Whether that happens will depend on the tradeoffs people make. Do they pay more upfront to buy a better policy that covers them for a possible serious illness, or do they gamble that nothing bad will happen to them and choose a lower premium with less coverage?  We don’t know the answer. 

There’s another reason for reviving the copper policy. By giving Republicans cheaper alternatives for their constituents, ACA supporters hope they can convince the GOP to support continuation of the cost-sharing subsidies to families with incomes below 250 percent of the federal poverty level. That’s $61,500 for a family of four and $30,150 for a single person. The subsidies help pay some of the deductibles and co-insurance their policies require and make it possible for them to stay insured. The Trump administration has not made a commitment to continue them for the long term.

Last month in his newsletter to clients, Washington insurance consultant Robert Laszewski also suggested new lower cost policies that wouldn’t cover as much as Obamacare policies do. He called one of them the Chrome Plan, which would cover 60 percent of someone’s expenses, but not have to provide all the Obamacare required coverages. The other would be an Iron Plan that would cover only 50 percent of medical expenses. Such plans would certainly lower the monthly premium and give insurers the flexibility to “mix and match the benefits a consumer wanted,” Laszewski argued, adding “by offering this Chrome and Iron flexibility, health plans would have the freedom to experiment with various plan designs looking to find the market’s sweet spot.”

In other words, Americans with middle incomes, including those just above the line, would have to dig deep into their pockets to pay their cost-sharing as a tradeoff for allowing those with incomes below the line to have an easier time.  What kind of a deal is that?  How many families with middling incomes, say, in the $50,000 to $70,000 range or even higher can afford to shoulder $14,000 in out of pocket medical expenses if a serious illness strikes or an accident happens?  Probably not many!

Last week, a new study from The Commonwealth Fund offered some insight into this dilemma. It found that the number of people without health insurance rose among middle-age Americans between 35 and 49 and among those with upper and middle incomes.  According to VOX, premiums rose on average 25 percent last year for Obamacare policies, which was one reason cited for not buying insurance. The Commonwealth study also noted that those with incomes above 400 percent of poverty were not eligible for tax credits to help them buy coverage and that may have contributed to their dropping insurance. Another reason, though, may be the rising deductibles and coinsurance they have to pay.

A Minnesota woman wrote to me earlier this year explaining why her family with an annual income of around $100,000 no longer carried insurance. The best silver plan they looked at carried a $1,800 premium and a deductible of $7,800, which they had trouble paying. Her family needed to use a lot of medical services “seeing different providers who all wanted a monthly payment.” She told me, “Paying so many every month is a big bill plus it will take months/years to get them all paid, trapping us in debt. Just when we do get one paid off someone needs some type of health care and we get a new one to pay. Frustrating!”  So they decided to save the monthly premium, and pay as they needed services hoping to save money for the kids’ college or their Roth IRA. That’s hardly a satisfactory solution.

The point is everyone needs health insurance at a price they can afford and that includes not only the monthly premium but the out-of-pocket expenses that continue to climb. Copper, chrome, or iron policies may reduce only one part of the insurance equation. They will also help insurance sellers like WellPoint which became skillful at selling bare-bones policies before Obamacare became law.

But is that the kind of insurance system Americans really want?

Veteran health care journalist Trudy Lieberman is a contributing editor at the Center for Health Journalism Digital and a regular contributor to the Remaking Health Care blog.