When Having Insurance Still Leaves You Dangerously Uncovered

A version of the following originally appeared on The Upshot (copyright 2016, The New York Times Company).

One of the few things that Donald J. Trump and Hillary Clinton seemed to agree on was that high out-of-pocket spending on health care was a problem. One of Mrs. Clinton’s most popular health care proposals during her campaign was to reduce out-of-pocket spending to more “manageable” levels for many Americans. President-elect Trump said he could fix this problem by repealing Obamacare and replacing it with something better.

As I’ve written before, while more Americans are insured, many are still underinsured — meaning that they are exposed to significant financial risk from out-of-pocket payments. Reducing out-of-pocket spending, however, will require some trade-offs. No easy solution exists, but there are examples out there worthy of consideration.

Before we can discuss any plan’s specifics, let’s look at exactly how the health care system extracts money from you. Plans differ in the amount of actuarial value they have. That’s the percentage of the cost of care that insurance will cover. If a plan has 60 percent actuarial value, then it covers 60 percent of your potential health care spending, and you cover 40 percent. Plans with higher actuarial value cost more. In the Affordable Care Act insurance exchanges, bronze plans have a 60 percent actuarial value. Silver plans have 70 percent, and gold plans 80 percent.

You pay up front for health insurance with a premium that is often charged monthly. But that’s not all the spending you’ll do. Almost all plans come with deductibles. This is an amount of money that you are responsible for paying for health care before insurance coverage kicks in. The reason plans have deductibles is that research shows you’re less likely to spend your money than the insurance company’s money. Plans with lower deductibles usually have higher premiums.

Even after you spend the deductible, you’re not done, though. Most plans come with co-pays. These are set fees that you have to pay each time you use the health care system. They may be $20 for a doctor’s visit, or $100 for an emergency room visit. Some plans use co-insurance instead. That’s when you pay for a percentage of your care instead of a set fee for each service.

The lower the actuarial value, the more you’re going to pay out of pocket in deductibles, co-pays or co-insurance. But plans on the Obamacare exchanges are all subject to an out-of-pocket maximum. In 2016, for a family, it was $13,700, and for an individual it was $6,850. Even the bronzest of bronze plans can’t ask you to pay any more, but they are more likely to let you hit the maximum.

That’s a lot of money. This is true even in the employer-based insurance market. In 2016, almost 30 percent of workers were enrolled in a high-deductible health care plan. More than half of employees with individual plans had deductibles of at least $1,000. Two-thirds of covered workers had co-pays, and 25 percent had co-insurance for primary care. Almost 20 percent of workers were in plans with an out-of-pocket maximum of $6,000 or more.

Mrs. Clinton proposed a tax credit for those with high out-of-pocket spending, up to $5,000 per family, or $2,500 for individuals. This tax credit would be applied to insured Americans whose out-of-pocket health care spending rises above 5 percent of their income.

Economists at the RAND Corporation modeled how this proposal might work. They estimated that this cost-sharing tax credit would increase the number of insured people in the United States by 9.6 million people in 2018. They also found it would lead to significant reductions in out-of-pocket spending for many Americans. Most of these savings would be felt by those making between 139 percent and 400 percent of the federal poverty line. People earning less are usually on Medicaid, which has little out-of-pocket spending already, and people earning more are less likely to see such spending reach the limit.

The trade-off is that this would cost the government money — quite a bit of it, in fact. It’s estimated that the tax credits alone would cost more than $110 billion in 2018. Some of this government spending would be offset by people choosing to take private insurance (with the credits) over Medicaid, which could reduce Medicaid spending by $25 billion. Over all, it’s estimated that this policy would increase the federal deficit in 2018 by just over $90 billion. Of course, this could be offset by new taxes or fees, but those would surely be unpopular.

Mr. Trump offered no specific plans for reducing out-of-pocket spending. But that’s not surprising. It wasn’t that long ago that one of the most favored means by which conservatives proposed to bring down health care spending was to have consumers put more “skin in the game.” Many of them believed that if consumers were more exposed to health care spending, if they had to pay more out of pocket for care, then they would be more responsible consumers because of it.

In fact, calls have already begun for Mr. Trump to expose people to even more out-of-pocket spending. Right now, the Affordable Care Act has provisions that help reduce cost-sharing below the out-of-pocket maximum for those making less than 250 percent of the poverty line who purchase a silver-level plan. Those payments are made directly to health plans that cover those people.

It may be possible for the president to cut off those payments immediately, without any congressional involvement. If he were to do that, and it’s unlikely, it would either cripple those insurance companies, or they’d withdraw immediately from the exchanges, terminating coverage and leaving millions without health insurance overnight.

It’s also unlikely that the Trump administration would cover more people’s out-of-pocket payments with federal money. To argue suddenly that people should be shielded from the expense of health care would be a sea change for conservative health insurance design.

That doesn’t mean that there aren’t changes that might make sense. In other countries, like France and Singapore, cost-sharing for those with chronic illnesses, those who might spend the most on health care, is such that they have their co-pays waived or reduced.

The theory there is that we want to use cost-sharing to encourage the healthy to spend less, but remove barriers for the sick. Changes like this might leave in place many of the benefits that cost sharing is supposed to provide in curbing spending, while removing the harms of high out-of-pocket spending for many vulnerable Americans who need care the most.

Regardless, out-of-pocket spending was an issue throughout this campaign, and it’s not going away soon. It’s probably something the Trump administration will need to grapple with in order to satisfy campaign promises without abandoning conservative principles of reform.


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