• “Rate shock” in California is not due to increased insurance generosity

    The following is a guest post by Sam Richardson, an instructor at the LBJ School of Public Affairs, UT-Austin. Sam is also a PhD candidate in Health Policy (economics concentration) at Harvard, where next month he will be defending his dissertation on quality-based provider payment. You can follow him on Twitter: @Prof_Richardson.

    Avik Roy and others have been beating the drum on “rate shock”, the idea that younger, healthy people (particularly young, healthy males or “bros”, for short) will face much higher premiums under Obamacare than they pay for non-group insurance now. One counter to their argument has been that Obamacare’s mandated minimum coverage requirements would mean that while bros will pay higher premiums, they will get more generous coverage. Roy’s response has been that bros currently buying cheap plans clearly don’t value more generous coverage, or else they would purchase it. But everyone (except perhaps the Capital One baby) places some value on more generous insurance; the question is simply how much.

    I decided to do some digging into the minimum coverage question, and it turns out that Roy has a much better response available: at least in California, bronze plans on the exchanges aren’t any more generous than the cheapest non-group plans currently available. (Ohio is potentially another story, where one of the comparison plans used by the Department of Insurance had a $25,000 deductible.)

    I don’t have an army of interns, so I focus on plans available in Sacramento county (population 1.4 million, with health insurance premiums close to the state median: not as cheap as Los Angeles, and not as expensive as the San Francisco Bay Area). Going to eHealthInsurance.com, and entering a Sacramento zip code (95811), I find that the cheapest plan available to a 25-year-old is $94/month, offered by Health Net. (Note that in California men and women are currently charged the same premiums, so what applies to a bro also applies to a sis.) The second-cheapest is the $100/month 50/5000 plan from Kaiser Permanente. Because Health Net is not participating in the exchange in Sacramento, I picked the Kaiser plan, and compared it to the Kaiser bronze-level exchange plan, which is at $205/month is the second cheapest bronze-level plan, after a $197/month plan from Anthem Blue Cross. A nice benefit of comparing Kaiser’s plans is that Kaiser’s provider network is the same across all of its plans, and there has been concern that California insurers may be bringing down exchange premiums by excessively restricting their networks. Data on California exchange premiums are from CoveredCA.com’s 2014 Health Plans and Rates booklet, and data on the standardized benefits packages at each level are available here.

    The table provides a summary of benefits for each plan, and it is striking how similar the plans are. The bronze plan has a $400 higher out-of-pocket maximum and somewhat higher copays, but the 50/5000 plan does not cover prescription drugs. (Note that a similar 40/4000 plan is currently available to the 25-year-old at $140/month, with a $4000 deductible and prescription drug coverage.)  So which plan is more generous overall? The actuarial value of a plan is an overall summary of the generosity of its benefits (actuarial value is the expected percent health care spending that will be paid by the plan, with the remainder paid by the enrollee). Luckily for us CMS has posted an actuarial value calculator: using the calculator I find that the overall generosity of the plans is nearly identical.

    AV compare

    For this post, I’ve put aside the question of how much we should care about protecting the vulnerable bro population, or whether we are likely to see adverse selection death spirals as bros drop out of the market (probably not, based on the Massachusetts experience). My work is admittedly preliminary, looking at one insurer in one part of one state, but I expect the result to be similar in the rest of California, if not across the country. Please let me know if you replicate this, looking at different plans in different parts of California, or in different states. But I would be surprised if rate shock in California will be driven to any meaningful extent by increased insurance generosity.

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    • Good research.

      One quick question — are you saying that an individual health plan in California before ACA covered pregnancy at all? Given what I know of other states, that surprises me.

      Then on the bronze plan:

      If a woman delivered a baby and the bill was $10,000……

      the patient would pay $6,400 maximum?

      Is this progress? I guess it is. However it still leaves the hospital with a bill collection problem and the patient with a large debt.

      If the patient just stayed uninsured, paid the fines each year, and came into the hospital uninsured…..the charity care guidelines in most hospitals would leave them owing a lot less than $6400, assuming an income less than 300% of FPL.

      • Bob, all non-group insurance products in California are currently required to cover maternity services, and may not charge different premiums to men and women. (California insurance code 10123.865 and .866, see here: This is one reason I’m careful to point out that what applies in California may not apply elsewhere.

        You’re exactly right about the $10,000 maternity bill: under the bronze plan, any bill over $9667 would cause the enrollee to hit the $6400 out-of-pocket max, after which there would be no additional cost-sharing.

    • “In California’s new state-run health insurance market, Kaiser Permanente will cost you.

      The healthcare giant has the highest rates in Southern California and some other areas of the state, surpassing rivals such as Anthem Blue Cross and other smaller competitors. The relatively high premiums from such a strong supporter of the federal healthcare law surprised industry analysts, and it has sparked considerable debate about the company’s motives.”

      http://articles.latimes.com/2013/jun/12/business/la-fi-kaiser-health-rates-20130613

      • Yes, Kaiser came in more expensive overall than many expected, but it varies a lot by insurance rating region and by the tier of the plan (catastrophic, bronze, silver, gold, platinum). Kaiser’s bronze plans and plans in northern California tend to be reasonably cheap, but Kaiser increases rates more quickly than others as they go to the higher tier plans, and charges more than others in Southern California. Note also that the Southern California rates are lower overall than rates in the north.

      • I live in Northern California and have Kaiser.
        I found it to be the least expensive plan I could find. It is much cheaper than any of the others for my area.

    • Would be interesting to look at how many bros actually managed to get the $100 plan. My understanding is that they would still have to fill out an application and then see that $100 price adjusted accordingly, while the community rated $205 price is essentially guaranteed, with few exceptions.

    • If the actuarial values are similar and the premiums are nearly double between the two plans, then most likely explanation is that the populations being insured are different, i.e. Kaiser expects that the population buying coverage through the exchange will probably incur twice as much in claims as the population currently buying insurance directly. They’ll be less healthy, basically.

      In states with fewer current restrictions on their individual markets (e.g. they allow gender rating, they allow age rating, they allow full health status rating), the differentials in rates would be higher all else equal because the average person buying coverage is less healthy than the people currently buying. (The Kaiser Foundation has a list of state individual insurance restrictions below).

      But if the premium is only doubling in California for a pretty similar policy (and obviously this is before subsidies), then I agree, it’s hard to see how this results in a death spiral.

      http://kff.org/other/state-indicator/individual-market-rate-restrictions/

    • Hi Sam, and very interesting calculation!

    • Does California currently have guaranteed issue? If not, the initial rate from ehealthinsurance.com is meaningful only for “bros” with no health conditions that may raise their premiums. What is the rate after medical underwriting?

    • You are not comparing apples to apples. The services and items covered are not the same. You are not factoring in the addition of essential health benefits to the new Exchange products. Additionally, you are not working off of the latest Exchange information. For instance, the new OOPM for products in the Exchange is $6,350 not $6,400. Other changes have been made as well. As you stated, your work is “preliminary,” but it is also patently incorrect and based on outdated information.

      • Apologies for the mistake regarding the out-of-pocket maximum; I was operating off of this apparently non-final “final rule”, because it provided more detailed information than I could find on CoveredCA.com: http://www.healthexchange.ca.gov/Policies/Documents/QHP%20Standard%20Benefit%20Plan%20Design%20Emergency%20Regulation%20Filing%203-22-13.pdf

        Can you point me in the direction of something that has more detail than this? http://www.coveredca.com/PDFs/English/CoveredCA-HealthPlanBenefitsComparisonChart.pdf

        I have not accounted for the current KP plan not covering pediatric dental (irrelevant to a bro, and not a big-ticket item in any case), but I did account for it not covering prescription drugs, and my reading of the plan documents indicates that the plan does cover the rest of the essential health benefits.

        In any case, I reran the actuarial value calculation using the $6350 cap, along with the other change on the CoveredCA page, increasing the imaging coinsurance from 30% to 40%. This actually lowers the actuarial value to 59.8%. Are there other changes I should include?

        • Kaiser (as well as all other CA plans) is not required to cover the EHBs until 2014 so, unfortunately, your preliminary read of their outside the Exchange product is, again, not apples to apples. They are not currently providing EHB-compliant coverage–they are not required to until 2014. There are dozens of differences. I suggest taking a look at the specific subscriber contracts and EOCs for the details–it is impossible to compare the information you are reviewing on ehealthinsurance (which does not go into nearly enough detail) and Kaiser’s EOC for the Exchange, which isn’t even public yet.

          Additionally, you are missing that California has two health coverage regulatory entities. Just because something is in the Insurance Code, which is enforced by the CA Department of Insurance, does not necessarily mean it is the same in the Health and Safety Code, which is enforced by the CA Department of Managed Health Care. Although the two Codes are getting more and more alike with the EHBs and other elements of health care reform, they are most definitely not the same. The Health and Safety Code is by far the more “generous” and consumer-friendly.

          I would suggest you take a look at both the CA Dept of Insurance and the DMHC’s emergency regulations re: EHB to gain a better understanding and so that you can make meaningful comparisons between the coverage. The updated regulations from the Exchange should be made public on their website sometime this or next week. You can also either call or email them to request the latest information.

          I apologize if I come across as annoyed but these kinds of postings really bother me because they fail to take into account the intracies of state law, and especially law that is as convuluted as California’s. These erroneous comparisons are almost always too general, based on flawed data, and offer nothing of substance for consideration. What they do do is provide ammunition for politically charged debates that further mis-educate.

          • Thanks for your thoughtful reply, and I fully appreciate that I am not an expert on the intricacies of California insurance law.

            My read (of the EOC, not the info on eHealthInsurance) is that the EHBs are unlikely to change the AV calculation much, but if anyone wants to point out areas where the 50/5000 plan is majorly deficient on the EHB score, I would be happy to know about it. Here’s a detailed description of the plan: http://goo.gl/wkNlW .

            I think my analysis was important in that people had been thinking bronze plans were substantially different from what we think of as a bare-bones non-group plan. At least in California, that doesn’t seem to be the case.

    • Correct me if I’m wrong, but isn’t an equal actuarial value evidence that the bronze plan actually is more generous, Sam? If the actuarial values are identical, wouldn’t that imply that while you’re paying more in premiums, you will also be receiving more in benefits?

      I’m rounding of course, but in the first plan, for $100 in premiums, wouldn’t the average bro expect to receive $60 in benefits while for the second plan, his $200 bronze plan will convey $120 in benefits, largely due to differences in ED and prescription drug benefits?

      I think the concept of “generosity” is a little hard to define in the context of an insurance plan, but I think the presented data imply at the very least that while the exchange plan is more expensive, the benefits are also more or less equally greater.

      • Simply stated – no. The actuarial value of the plan is determined without regard to the premium charged. The cost sharing referred to is a function of deductibles, OOP and any other costs splits for actual claims.

      • No, the premium is not included in the actuarial value (AV) calculation. What a 60% AV says is *after* you’ve paid premiums, for each $100 in medical expenses you have, on average you will pay $40 out-of-pocket and the plan will pay $60.

        Note that for people with low expenses, they will not reach the deductible, and their effective (ex post) AV will be close to 0, as the plan pays almost nothing. For people with high expenses, the effective AV will be well above 60%, since the plan pays for everything after the out-of-pocket max. This is insurance doing its job, protecting people from unexpectedly high medical expenses.

    • One thing that we overlook in these discussions is what it the actual BENEFIT to the “Bro”. I found this site useful in trying to understand this

      http://meps.ahrq.gov/mepsweb/data_stats/tables_compendia_hh_interactive.jsp?File=HCFY2010&Table=HCFY2010_PLEXP_%40&VAR1=AGE&VAR2=SEX&VAR3=RACETH5C&VAR4=INSURCOV&VAR5=POVCAT10&VAR6=MSA&VAR7=REGION&VAR8=HEALTH&VARO1=26+30+49+64&VARO2=1&VARO3=1&VARO4=1&VARO5=1&VARO6=1&VARO7=1&VARO8=1&TCOPT1=1.1&TCOPT2=&ModPopCheck=Yes&CCustomize=Yes&Customize=&ModPop=Yes&_Debug=&DDAGELOW=&DDAGEHIGH=&Action.x=158&Action.y=13

      I looked at the 27-30 year old group and found the following
      1 in 4 has 0 health care expense for any given year…
      the average expense is $2830

      So on average – a $200 a month premium seems like it might be OK…

      But if you customize the table and dig a bit deeper you learn the following

      27-30 year old males who self define themselves as in good health or better face…
      38.7% of them have NO expense in any year.
      There average expense is $1523 – just over half of what it is for others in the age group – women and men in fair or poor health…

      BUT the Median for those WITH any EXPENSE [half pay more half pay less is just $507…

      So for this group the Bronze plan is a pretty bad deal – it will only cover 60% or so of their actual expense – which will be small – but cost them $2400 a year.

      This is the group that will – if they analyze their situation rationally – opt to “self-insure”. If they don’t overpay on their income tax withholding they will not even have to deal with a penalty since the IRS is currently pretty toothless on collecting unpaid penalties…

      It gets even better if they smoke – they will save themselves $3600 a year.

      In general the same problem can be found across all age groups – the Median and Mean health care spending is very different – this suggests that we are moving to a system where young – healthy males will be subsidizing the unhealthy older and female.- IF they choose to do so.

      • The problem with this line of thinking is that insurance is not intended to lower your overall average cost. Insurance is intended to protect you financially in case you are unlucky and have unexpectedly high medical expenses, so the mean and median are not the most relevant measures.

        For example, people who purchase home insurance pay more premiums on average than they receive in payouts (otherwise the insurers would go broke). But people value the protection they get from the financial catastrophe of having a house burn down. Just because the house didn’t burn down doesn’t mean buying insurance was a bad idea.

        It will depend on each person’s level of risk aversion whether it makes sense to self-insure or not, though results from the Massachusetts reforms give Obamacare supporters reason to be hopeful that not too many will drop out of the exchanges.

        • I understand the role of insurance – and would be OK with a real insurance program that covered the sort of things in the healthcare arena that homeowners or car insurance cover. But we are comparing those policies to a product that is a mix of insurance and prepaid healthcare. The problem is that young males not only need the health insurance part less – they need and use the other/preventive care components a lot less. They will not be looking to have a mamogram or colonoscopy for many years. The lack of any real benefit to a LARGE percentage of them – well over half of them will spend LESS than $50 a month on healthcare without insurance. I do think the median and mean expenditures are relevant – and the are relevant by gender. The ACA is a plan to transfer huge amounts of money from young, healthy males to a relatively small group of unhealthy folks. Doing this via a more direct method might have avoided the overhead paid to insurance companies and saved us all a lot of money.

    • First, the fact that individual insurance in California now covers maternity is very unusual. In most other states, the fact that manternity is requred under the ACA makes insurance sold in the Exchanges signfiicantly more generous

      I also wonder about other Essential benefits such as drug conseling,
      rehab, habilitative care, mental heatlh coverage. . Are they included? .

      On Kaiser charging more: part of the “value” of a plan is its network. If you look at Consumer Reports NCQA quality ratings of networks in California, you will find Kaiser at the top. Customer satisifaction is higher, preventive care is better and outcomes are better. See http://www.healthbeatblog.com/2013/05/who-will-sell-insurance-in-the-exchanges-non-profit-insurers-for-consumers-this-is-great-news-part-1/

      Finally Lonely Libertarian writes that ” if you customize the table and dig a bit deeper you learn the following: 27-30 year old males who self define themselves as in good health or better face… 38.7% of them have NO expense in any year.”

      He seems to miss the point of insurance. You’re not trying to buy coverage to protect you against your likely expenses (based on average for your demographic group) but to protect you against less than likely expenses.

      We are mandating that everyone buy insurance so that the rest of us don’t wind up paying for a Bros when he is surprised by an auto accident or the diagnosis of a brain tumor . . .

      Finally, I don’t entirely understand the focus on whether health insurance is a good value for a healthy “Bros.” Presumably he has a mother, may have a sister, a girlfriend, a good friend with a chronic illness that has made it impossible for him to get insurance, a nephew who needs speech therapy . . .
      Since he doesn’t live alone on an island, isn’t his sense of well-being enhanced when he doesn’t have to worry about those around him going without needed care?

    • The out of pocket limit for insurance purchased through the exchange depends on the person’s income. The information from this site seems dated but the rule about the out-of-pocket limit being income based still applies as far as I know.

      http://www.dpc.senate.gov/healthreformbill/healthbill49.pdf

    • As Ms Mahar politely suggests, it is not wrong for men to pay a little more for health insurance so as to subsidize women.

      Steff Woolhandler wrote a good piece on how high deductible insurance hurts women, I think last year.

      Adam Gopnick and Malcolm Gladwell had a fascinating piece in the Atlantic a few years ago on men’s vs women’s attitudes toward health insurance.

      Men often ignore doctors until they have a heart attack or a skiing accident. Then they want a helicopter and a transplant. High deductibles are just fine with them.

      Women use doctors a lot more, and so they tend to favor insurance with low deductibles and free primary care.

      The ACA has the women’s viewpoint all over it. The debate over coverage of $80 contraceptives made absolutely no sense to many male commentators, including me, but it was a very big deal to women.

      This hidden bias is not just a posturing you hear in bars. A lot of men who are not ‘chauvnists’ still take this attitude that primary care is trivial.

    • Sam & Lonely Libertarian–

      Sam–I think the fact that you side-stepped subsidies, and focused on the bronze plan( rather than the benchmark silver plan) skews things.

      2.6 million Californians wil receive subsidies. That includes a great many health single young men-as you know,-those who earns less than $46,000 a year will qualify. I don’t have an exact number, but I have to think that the vast majority of 20-somethings and young 30-somethings earn less than $46,0000.)

      As this table shows, a 25-year-old young man in California earning $17, 250 would receive a subsidy that bring the cost of a silver plan down to $34 a month. http://www.washingtonpost.com/blogs/wonkblog/wp/2013/05/23/california-obamacare-premiums-no-rate-shock-here/

      The offer is just too good to turn down.

      Given the fact that subsidies are so generous, I wonder how many people will actually choose the Bronze plan? When I look at the plans in California, the silver plans and platnium plans are a better deal—— if you can afford them. But the subsidies are designed to make a silver plan affordable for practically anyone.

      Finally, even a relatively affluent 25-year-old in California who doesn’t qualify for a subsidy can buy a silver plan for $216-$230 a month.
      For $172 to $185 he could buy a Bronze plan.http://www.washingtonpost.com/blogs/wonkblog/wp/2013/05/23/california-obamacare-premiums-no-rate-shock-here/

      Clearly, the silver plan represents a much better value for his dollars.

      Lonely LIbetarian: You really can’t compare homeowners’ insurance and car insurance to health insurance.

      The former protects property; the latter protects lives.

      That is why we all have a vested interested in helping everyone pay for health insurance.

      Even if I don’t have children, I don’t want anyone’s children to go without the care they need. Even if my mother is no longer living, I don’t want anyone else’s 60-year-old mother to have to choose between buying extremely expensive prescription drugs (say, fo cancer or MS) and buying food. I also want her to be able to go for
      any preventive care that her doctor says she needs.

      When thinking about health care we need to think as a community (“we) not as individuals (“me and my family” )
      In that way, we protect each other.
      This is one reason why healthcare is better in Europe. A friend who lived in France for many years put it this way: “Healthcare in France is so good because the French feel that nothing is too good for another Frenchman.”

      Unfortunately we don’t feel that way about each other.
      Race, income , age even gender divides us. . But hopefully, the ACA represents a step toward a more egalitarian society.

      You’re entirely right, part what healthcare insurance covers is pre-paid care & preventive care.
      When young men skip preventive care, they set themselves up for
      heart disease and other problems. In the end, we all pay for that.

      This is why healthcare for men becomes more expensive as they grow older. Women’s health care bills are higher when they are younger–in part because they bear children, in part because they use more preventive care.

      As they grow older, women’s health care bills are lower, in part because they took better care of themselves when they were younger.

    • Sam-

      You make a very good point.
      Here’s what I don’t understand: why would an individual earnign $34, 470 in California not get a subsidy?

      I don’t think it’s up to the states. The subsidies are based on Federal
      poverty levels, not state poverty levels.

      Premiums vary depending on where you live, but subsidies are supposed to make up for those variations. (In other words, if you earn $34,000 and live in Iowa, your share of the premium, after the
      subsidy, will be the same as a single person of the same age living in Manhattan.)

      What am I missing?

      Finally, thanks very much for an extremely interesting post that has made us all think.

      No one can know everything that there is to know/understand about the ACA and your example does a good job of raising the questions.