Let’s Add Some Cash to the Copper (and Other) Plans
A version of this Health Alert appeared at Forbes.
Avalere Health has given a budget score to the so-called “copper plan,” a health insurance policy proposed by health insurers that would cover 50 percent of the actuarial value (AV) of the policy. Our colleague Linda Gorman has defined AV as the average amount a plan with a given set of benefits is likely to pay given a standard population. Current Obamacare plans (bronze, silver, gold, and platinum) cover higher actuarial values.
Actually estimating actuarial value in Obamacare is complicated. Nevertheless, to simplify, we can say that if the standard population would cost $8,000 per beneficiary, a copper plan would expect to pay $4,800 of the costs.
One problem with Obamacare’s regulation of these plans is that the AV is forward looking. Different actuaries come to different conclusions. For example, an Obamacare silver plan has an actuarial value of 70 percent. With an out-of-pocket maximum of $6,350, what co-insurance and deductible will result in the standard beneficiary paying 30 percent of the costs? When this question was posed to three highly respected consulting actuaries, they came up with three different answers. Each proposed a 20 percent co-insurance. However, their deductibles differed substantially: $4,200, $2,050 and $1,850.
Another problem, discussed frequently at our blog, is that Obamacare incentivizes insurers to design plans that will attract the healthy and dissuade the sick from enrolling. Because a small portion of any population accounts for most of the health costs, an insurer can design a plan that will have extremely high cost-sharing for sick people. The easiest way is an expensive tier of specialty drugs. Because most of the people will not spend anywhere near their share of the AV, the plan overall will hit its target.
Unfortunately for insurers, their plans are not achieving their goals: Sicker people have piled into Obamacare. So, it is not surprising that insurers want to offer a copper plan with even lower AV, in order to attract more healthy people with lower premiums.
Within the context of Obamacare, it should definitely be allowed. One advantage is that a copper plan would reduce government spending on Obamacare. According to Avalere, it would reduce government spending by $5.8 billion through 2014, and reduce receipts by $5.5 billion. This would result in a small reduction in the deficit.
To be sure, this is a drop in the ocean of Obamacare spending — but every bit helps. Further, Obamacare has annual open enrolment, so healthy people who chose the copper plan can upgrade next year if their health status changes. (Open enrollment is not our preferred way to manage this risk. We prefer health-status insurance. Nevertheless, open enrollment does afford some choice.)
Insurers should be free to offer copper, or lead, or brass or whatever policy they want. However, as long as the federal government is subsidizing insurers billions of dollars in these exchanges, it should offer some of the money for beneficiaries’ direct use, via deposits in Health Savings Accounts, Health Reimbursement Arrangements or Flexible Spending Arrangements, instead of handing it over to insurers.
States have improved Medicaid with innovations such as Health Opportunity Accounts (HOAs), which allow Medicaid dependents to control some Medicaid money directly. Disabled Medicaid beneficiaries have benefited tremendously from “cash and counseling,” which gives them money to hire home-health aides directly, instead of passively accepting whomever the county bureaucracy sends over.
Obamacare beneficiaries should have the same power as these Medicaid beneficiaries. By all means, let’s have a copper plan, but let’s give some Obamacare cash to people, not just insurers.
Just imagine the outrage if a pre-Obama insurer offered a plan that covered only 50% of expected expenses. The Left would be howling and beating its collective chest — “substandard policies!” “consumer rip-offs!” “Eeeeeevil insurance companies.”
Funny how an activity can be condemned when a private company does it, but shrugged off as no biggie when done by the federal government.
I would add “underinsured” to the name calling, Greg.
We should point out that two things here
1)Only the silver plan affords those who receive subsidies to pay the premium of a bronze plan but have the out-of-pocket (AV)of a gold or platinum plan
2)Catastrophic plans, now popular with young people, mirror a bronze HSA qualified option only with a Dr. office copay prior to deductible, rendering the catastrophic plans non HSA qualified.
It remains to be seen if the “copper” plans will match with an HSA.
I doubt the insurers care whether they will be qualifying High-Deductible Health Plans (HDHPs), because insurers cannot add administrative load to HSA balances.
As to the administrative costs the banks add to HSA accounts, that is another issue!
At the very least insurers should be allowed to create plans that have a HSA (cash) component or a HRA-type Heath account component coupled with a high-deductible.
The original design of Medicare Part D interests me. Many people thought the cost-sharing arbitrary. But the donut hole with different cost-sharing depending on how much you had spent made the plans of value to a widen range of health status. However, a copper plan with HSA or HRA accounts should rate higher than merely copper. That could be a sticking point; regulators may want to rate plans with an savings component lower than the plans should rate.
The problem is that politicians keep filling in doughnut holes and whatnot. It is an easy way to buy votes!