• Financial burdens in the health exchanges

    We’re less than a year away from the implementation of the health insurance exchanges. No one knows exactly what will happen. Massachusetts remains our best predictor, though. A new study in Health Affairs* looks at how the exchanges in Massachusetts are performing with respect to protecting people from financial burdens due to health care costs:

    Health insurance exchanges created under the Affordable Care Act will offer coverage to people who lack employer-sponsored insurance or have incomes too high to qualify for Medicaid. However, plans offered through an exchange may include high levels of cost sharing. We surveyed families participating in unsubsidized plans offered in the Massachusetts Commonwealth Health Insurance Connector Authority, an exchange created prior to the 2010 national health reform law, and found high levels of financial burden and higher-than-expected costs among some enrollees. The financial burden and unexpected costs were even more pronounced for families with greater numbers of children and for families with incomes below 400 percent of the federal poverty level. We conclude that those with lower incomes, increased health care needs, and more children will be at particular risk after they obtain coverage through exchanges in 2014. Policy makers should develop strategies to further mitigate the financial burden for enrollees who are most susceptible to encountering higher-than-expected out-of-pocket costs, such as providing cost calculators or price transparency tools.

    As I’ve said many, many times before, the ACA is mainly about access. It’s a law that is designed to reduce the number of people in the US who lack health insurance. I still believe it will succeed in that regard. But many also hope that it will reduce the cost of health care. I’m not as sure about that.

    This study looked at people in Massachusetts’ health exchange and asked them about the issues they face due to health care costs. They found that 38% of patients reported a “financial burden,” defined as having problems paying medical bills, having to set up a payment plan to pay medical bills, or having trouble paying for things like food, heat, or rent because of medical bills. They also found that 45% of people reported higher-than-expected out-of-pocket costs for health care.

    This isn’t great news. It means that a significant number of people are still finding health care costs to be a real problem. It gets worse, though. Families with more children had more problems. So did families who make less than 400% of the federal poverty line.

    Now it’s important to remember that this is a study of the Massachusetts exchange, which is not the same as exchanges under the ACA. It’s possible that even the “bronze” level plans of the ACA will offer more coverage than some of the plans studied here. Subsidies are also more generous under the ACA than they are currently in Massachusetts. But not everyone will get subsidies in 2014. Those who make more than 400% of the poverty line will likely face many of the issues seen in this study.

    Moreover, the fact that so many had “unexpected” out-of-pocket costs illustrates the need for better outreach and education. Families need to be aware of how much health care will still cost, even under the ACA. Myths about affordability abound. People need facts. Policymakers need to make sure they get them. Otherwise, too many will still face financial burdens in the future.


    *Full disclosure – one of the authors is a close, personal friend of mine. I won’t embarrass the person by saying which one, but you should all know the conflict exists.


    • Won’t dumping Medicaid expansion onto the exchanges make the problem (of higher than expected costs) even worse? This issue was addressed in this blog shortly after the administration decided to allow states to use the exchanges for Medicaid expansion, but the eventual outcome can be little more than an educated guess (for experts such as Carroll’s unnamed friend). I’m very concerned about the prospects for the exchanges, which I believed would be one of the best features of health care reform. I’m nearly old and self-employed, so I’m in the individual insurance market. I call it health insurance hell. Besides the increasing costs for the nearly old, the mind-numbing and (intentionally?) confusing options offered by insurers make the choice a crap shoot. What I expected from the exchanges wasn’t lower cost, but a better educated choice. So when the administration essentially punted on the design of essential health benefits, my expectations dropped. And then came the decision to dump Medicaid expansion onto the exchanges. As Dr. Carroll accurately observes, ACA is “a law that is designed to reduce the number of people in the US who lack health insurance”. I don’t doubt that ACA will achieve this worthwhile goal. But I fear that universal insurance coverage will be a disappointment to many Americans who expected much more from health care reform.

    • Aaron,

      Please ask your friend if she knows why someone <300% FPL would choose a connector exchange plan over one of the Commonwealth Care plans, which are less expensive and have lower OOP costs. Seems like Commonwealth Care is the right choice (Not available in the ACA).

      Other than quibbling with your statement that the ACA has more subsidies than the Mass plan, which I'd like you to explain further, this discussion is very important as I've stated on this blog the OOP costs will be a significant burden on the underclasses.

      I do have an issue with this sentence from the article:

      "To keep out-of-pocket expenses as low as possible, people with annual incomes of less than 400 percent of the federal poverty level will be able to obtain federal premium subsidies to purchase coverage through exchanges, and those earning less than 250 percent of the federal poverty level will also be eligible for cost-sharing subsidies."

      This tends to conflate premiums with OOP costs, which are different and have different justification.

      Premium subsidies are direct incentives to obtain health insurance and join the game. Without the subsidy, private health insurance for this group is unaffordable. Deductibles and Co-Insurance are disincentives to seek care, and back-end methods for the insurer to meet its actuarial rating (meet its profit margin). Someone can have insurance with a small premium, however be totally underinsured because based on income and savings they can never pay the OOP costs. This is like AIG collecting money to insure derivatives but not being capitalized enough to handle the claims.

      OOP costs are deductibles (first-dollar coverage) and co-insurance (cost-sharing).

      To the health consumer the federal premium subsidy has nothing to do with keeping OOP costs low, as the OOP costs can (and will) be adjusted separately to meet AR and maintain profit.

      The higher premiums go, even with subsidy, more people will take the penalty and not pretend they can afford the back-end ( as it is now). The thing noone wants to talk about is how often the EITC is going to be used to pay the penalty. (Depends on the affordability exemption of the penalty.)

      Commonwealth Care skews a direct comparision between the ACA and Mass Health because of the positives: inclusion of <300 FPL and low OOP costs. It is a public option and is lower cost because of cost controls and lower management costs (Health Insurer Profit). They may be some negatives that I'm not informed of.

    • The external validity of this study is questionable. In its “policy implications” section, the article states “With actuarial values set by law at 60 percent, bronze exchange plans may cover a greater proportion of healthcare costs than the Connector bronze plans in our study, which had actuarial values of 40-50 percent.” May? By definition, a plan with a 60% actuarial value covers 50% more of a person’s OOP healthcare costs than a 40% AV plan. And the greatest cost-sharing reductions (as well as the subsidy) are tied to the 70% AV plan.

      So they then equivocate and say, well, this will really be a problem mainly for people above 400% of poverty but that’s not the population for which Exchanges are designed. Issues of medical costs and cost sharing are real but the thesis of this particular study (that people’s experience with the Connector is directly relevant to what we should expect people’s experiences with Exchanges to be) is largely invalid.