Off-exchange catastrophic options

I was wondering recently whether more catastrophic (higher deductible) plans could be offered off-exchange. By email Nicholas Bagley, University of Michigan Assistant Professor of Law, answered that question and many more.

The ACA requires insurers in the individual and small-group markets to offer the “essential health benefits package.” In §1302(a), the ACA defines that “package” to mean an insurance plan that (1) covers essential health benefits; (2) limits cost-sharing as outlined in §1302(c); and (3) pays for, as an actuarial matter, at least 60% of its enrollees’ medical costs (the “bronze level”). These requirements apply to all plans sold in the individual market, even if they’re not sold on the exchanges. (The only exception is for catastrophic plans sold to a subset of those under the age of 30. Those sorts of plans don’t have to adhere to the bronze-level requirement.)

What are the cost-sharing obligations outlined in §1302(c)? There are two of them. First, the total amount of annual cost-sharing is capped at $5,000 (subject to future adjustments to reflect premium growth). Second, deductibles are capped—but only for small-group plans. The ACA doesn’t limit deductibles for plans sold on the individual market. HHS regulations confirm as much. See 45 C.F.R. §156.130(b) (providing for an “[a]nnual limitation on deductibles for plans in the small group market”). Apart from covering preventive services without cost-sharing, and subject to the cap on annual cost-sharing, insurers in the individual market are free in principle to sell high-deductible catastrophic health plans.

Any such catastrophic plan, however, must also provide bronze-level coverage—meaning that it must pay for, on average, at least six out of ten dollars of the medical costs that its enrollees incur. This requirement will necessarily limit the size of the deductible. If the deductible is set too high, enrollees as a group will spend too much out of pocket for their medical care and the plan will no longer offer bronze-level coverage. It’s hard to say exactly what that limit will be, and it will vary from state to state. But the need to adhere to the bronze-level requirement means that catastrophic plans won’t be much cheaper than conventional bronze plans. That said, it’s plausible that catastrophic plans could be somewhat cheaper if the high deductible discouraged their enrollees from incurring medical expenses.

Here’s the surprise, at least to me: if you do buy a catastrophic plan on the individual market, you don’t have to pay the penalty. Under the ACA, you satisfy the mandate if you purchase “[c]overage under a health plan offered in the individual market within a State.” Section 1501, §5000A(f)(1)(C). Which is to say, any individual health plan, including one with a high deductible.

On the one hand, it really is true that the ACA limits (some say “stifles”) the market for catastrophic plans. On the other hand, the opportunity for a few thousand dollars of deductible is possible. For those wanting to self-insure more than that, they’re out of luck. My guess is that that’s a fairly small proportion of the population.

It’s perfectly reasonable to hold the opinion that more people should be encouraged, maybe even compelled, to purchase plans with higher deductibles than the ACA permits. Changing the law to accomplish that requires far less than repealing it. Moreover, it’s unlikely that very many with political power would want to impose an instantaneous shift to very high deductible plans. A gradual transition is more reasonable. You might argue that is, more or less, what we’re seeing. It’s happening for employer-sponsored plans and the Cadillac tax will further encourage it. And many on- and off-exchange plans will or could have deductibles larger than most insured Americans face.

Medicaid enrollees can’t afford high deductibles, though income transfers (even dedicated to health care use through HSAs) could address that. Again, repeal isn’t necessary for that. Just reform.

Medicare is another story, both politically and structurally.


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