Why skyrocketing out-of-pocket expenses are the real crisis in the American health insurance system

When is insurance not really insurance?

That’s what an Ohio man named Dave wanted to know. He described his family situation. Both he and his wife are retirees with an annual income around $57,000. He’s on Medicare; his wife had an Affordable Care Act policy until she went on Medicare last month. Her premiums have tripled since the ACA took effect, but a premium subsidy helped. Deductibles are another story.

“Even though premiums have jumped dramatically,” Dave told me, “the deductibles went up even more,” eventually reaching $5,500. “If your deductibles are that high, do you REALLY have insurance?” he asked. Dave answered his own question. “Technically yes, but only for a catastrophic condition. For all other practical purposes, you don’t have insurance, and that gets lost in the arguments supporting the ACA.”

Higher deductibles, coinsurance and copayments were always going to come back to haunt the Affordable Care Act, which was sold on the rationale that it would make health care more affordable, a dubious premise conveyed by Democrats and advocacy groups in their oft-repeated talking point: “Affordable, Quality Health Care for All.” But deductibles, coinsurance and copays had already begun inching upward long before the ACA passed as a way for employers and insurers to transfer more of the cost of care to patients themselves. Employers were buying into the idea of higher cost-sharing, and the ACA simply brought them into sharper focus as the preferred way to contain America’s health care costs without imposing government controls on doctors, hospitals, and other actors in the health care system the way other countries do. After all premiums are directly related to the amount of cost-sharing a policy requires, and the concept was hard-wired into the ACA policies. In recent years, people have paid more for gold policies sold on the Obamacare marketplaces in exchange for smaller deductibles or lower coinsurance and copays. Silver plans offered cheaper premiums and more cost-sharing, while bronze policies often carried very low premiums but high deductibles and cost-sharing.

Under the ACA’s new insurance paradigm, the cheaper your premium, the more you’d have to pay if you became ill. One way to think of it was as a penalty for getting sick. In the U.S., though, that’s accepted as a fair tradeoff politically and economically, even if it shoves a huge burden onto families that amass medical bills resulting from a serious illness, or simply from everyday health care expenses.

A Minnesota woman told me earlier this year her family could not afford insurance. Their income was a smidge above the cutoff for premium subsidies on the state exchange, and the cheapest policy they could buy in the individual market carried a premium of $1,700 and a $7,800 deductible. To the family, that seemed like no insurance at all to cover the many bills they have each month, so they decided to pay out of pocket as they needed care. “Paying so many (providers) every month results is a big bill,” the woman admitted. “Plus it will take months/years to get them paid, trapping us in debt. Just when we do get one paid off, someone needs some other type of health care, and we get a new one to pay! Frustrating.” There’s no money left to save for college or feed their IRAs, she said.

As I’ve just reported for CJR, the role of rising deductibles and coinsurance has been lost this year with heavy emphasis on enticing people into the market using extremely low premiums as the bait. Get America Covered, a group created by former Obama administration officials, tweeted, “Coverage could be more affordable than you think,” citing this stat from HHS: “80 percent of people can find a plan for less than $75 per month.”

Why hasn’t there been more discussion of the role of deductibles and other cost-sharing elements in this year’s push to get people covered? Do those driving the conversation, especially on Twitter, think that being up front about this year’s very high deductibles and out-of-pocket maximums and their consequences will scare people away, further weakening the insurance exchanges?

A Minnesota woman told me earlier this year her family could not afford insurance. Their income was a smidge above the cutoff for premium subsidies on the state exchange, and the cheapest policy they could buy in the individual market carried a premium of $1,700 and a $7,800 deductible. To the family, that seemed like no insurance at all to cover the many bills they have each month.

This year’s cost-sharing is very high, a fact that won’t be secret as soon as people begin shopping in earnest on the exchanges. It’s not even low for the young, healthy individuals exchange supporters want to buy ACA policies this year. Health Pocket’s just-released survey of health plan cost-sharing for 2018 tells a grim story. For bronze plans, the average family deductible is about $12,000 and the out-of-pocket maximum is nearly $14,000. For individuals, it’s about $6,000 for the deductible and $7,000 for the out-of-pocket maximum. For silver family plans, the deductible is about $8,000 with an out-of-pocket maximum of almost $14,000. For individual policies, those numbers are $4,000 and nearly $7,000, respectively. Cost-sharing is generally lowest for those who buy gold plans — close to $3,000 for the average family deductible and almost $12,000 for the out-of-pocket maximum. (The big twist this year is that, in the wake of Trump’s decision to end cost-sharing payments to insurers, shoppers in some areas can find gold and bronze policies with lower premiums than silver plans.)

As hard as it may be for some families to pay those out-of-pocket costs under the ACA’s current rules, it may get even more difficult. In their quest to get cheaper policies in the hands of their constituents, some GOP members of Congress are talking about adding a new kind of policy to the ACA’s stable of options, one that’s a close cousin to the catastrophic policy available to people under age 30 and those suffering economic hardship. Sales of this stripped down, catastrophic plan have not been robust. Policyholders must pay all their medical expenses until they spend $7,350 in 2018. Somehow, these members of Congress believe such a policy will catch on, and it’s possible that something called a “copper” plan might surface in further negotiations over stabilizing the ACA marketplaces. Introducing a bipartisan bill to fix Obamacare, South Carolina Republican Sen. Tim Scott said catastrophic “plans, currently only available for people under the age of 30, can help prevent medical bankruptcy in the event of emergency, and also ensure more families have the option to choose the health care plan that best fits their needs and budget.”

But such plans, if they become law, may ultimately backfire. Families could come to agree with Dave and the Minnesota woman that such policies are not really insurance and that paying their medical bills out-of-pocket (as the current catastrophic plan requires until the $7,350 deductible is met), could still land them in bankruptcy court if they have a serious accident or illness. Or others might decide minimal insurance is better than nothing.

American health insurance is at a crossroads until the country figures out how to control its medical costs, and Dave’s question still needs an answer.

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.

[Photo by Joe Raedle/Getty Images]