60 Percent of Health Plans that Could Meet Obamacare’s Essential Health Benefits are Illegal
According to Obamacare’s regulations, a health plan must pay at least 60 percent of the actuarial value (AV) of its costs. That means that if the cost of your health care for a year is expected to be $8,000, a plan which pays 60 percent (called a bronze plan in Obamacare), will cover $4,800 of the costs. You’ll be expected to pay $3,200 in deductibles and co-payments. Our colleague Linda Gorman defines AV as “the average amount a plan with a given set of benefits is likely to pay given a standard population.” I’ve also discussed that because Obamacare’s regulations define AV relative to a “standard population” health insurers can design plans that cause the sick to have extremely high out-of-pocket costs. Professor Bob Graboyes, in the compelling and
entertaining video presented below, explains another big problem with Obamacare’s AV regulations: They outlaw 40 percent of possible AVs above the 60 percent minimum. That is because the AVs defined as floors in the law for the four “metallic” plans (60 percent for bronze, 70 percent for silver, 80 percent for gold, and 90 percent for platinum), are interpreted in regulations as narrow corridors of 4 percentage points.
httpv://www.youtube.com/watch?v=p9BJ6bL0a-M
That is, a bronze plan can cover 58 percent to 62 percent of costs, but not 63 percent. So there is a gap between 62 percent to 68 percent AV (and 72 percent to 78 percent, and 82 percent to 88 percent, and above 92 percent) in which it is illegal for an insurer to offer a plan. The actual regulation (much less interesting than Professor Graboyes) justifies itself thus:
The proposed de minimis variation of +/- 2 percentage points gives issuers the flexibility to set cost sharing rates that are simple and competitive while ensuring consumers can easily compare plans of similar generosity. This approach strikes a balance between ensuring comparability of plans within each metal level and allowing plans the flexibility to use convenient cost-sharing metrics. The de minimis range also mitigates the need for annual plan redesign, allowing plans to retain the same plan design year to year and remain at the same metal level.
Professor Graboyes suggests that it is more difficult to change plan design than the regulation does, anticipating that as plans roll from 2014 to 2015, their AV’s will spill outside the bands and the plans will be cancelled. The Administration claims to have minimized this problem with a rule allowing “uniform modification of coverage“. So, we will see whether this solves the problem. The real question is: Why are insurers not allowed to offer plans at whatever AV they and their beneficiaries prefer?
Two thoughts come to mind…
1) We were promised that if you like your plan, you can keep your plan…
2) We were also assured that having an exchange (and all plans found therein) is a more efficient way to shop for health coverage. We were led to believe that insurers purposely make buying health coverage less transparent than needed to jack up the bill.
I don’t attribute anything sinister to the exchange and its backers. But it was poorly conceived and poorly launched.
Shouldn’t AV caps reduce premiums? There has to be a more pragmatic way to design these plans.
“This approach strikes a balance between ensuring comparability of plans within each metal level and allowing plans the flexibility to use convenient cost-sharing metrics.”
That sounds great on paper, but I don’t see how that outcome can manifest itself in practice.
This is all rubbish to the average American who just wants “affordable care” and protection from bills that are the price of a house. We often hear this fact: “Health care accounts for 1 of every 5 dollars spent in the United States.” Well health care administration costs account for 30 cents of that dollar, or SIX PERCENT of the economy. Not going to bore with statistics but it’s shocking to compare the rate to the rest of the world. Keep. It. Simple. Stupid.
Thank you. Every time the government ratchets up the regulations, it claims to do it to make things more simple. However, they end up becoming more complicated!
“government ratchets up the regulations”
Yeh, it’s how bureaucracy always works. How does the old song go?
“Sharks gotta swim, bats gotta fly . . . ”
I forget the rest of the lyrics.
But seriously, it’s important for the survival of liberty that only the few essential responsibilities be entrusted to governments in the first place. The delegates at Philadelphia in 1787 understood this, and thought they had done their job – especially after the Bill of Rights amended the Constiltution.
But bureaucracy never sleeps,never gives up, never acknowledges overreach. Therefore woe to the people in a democracy who stop paying attention.
The MLR is set at 80% which leaves .20 cents on the dollar. So between advertising, infrastructure and administration I would say your number are way off.
Also the plans that were cancelled did not include Preventative Services so consumer cost would be driven up due to catching an illness latter than sooner.
Common Sense.
“Moreover, doctors’ net take-home pay amounts to only about 10 percent of overall healthcare spending. Which if cut by 10 percent would save about $24 billion – a considerably modest savings when compared to the $360 billion spent annually for administrative costs as estimated by the Centers for Medicare & Medicaid Services (CMS), and the fact that 85 percent of excess administrative overhead can be attributed to the insurance system. Administrative costs for physicians are in the range of 25-30 percent of practice revenues and insurance-related costs are 15 percent of revenues, according to a National Academy of Social Insurance report for The Robert Wood Johnson Foundation.”
http://www.forbes.com/sites/realspin/2013/04/03/whos-to-blame-for-our-rising-healthcare-costs/
Which is why we at NCPA believe that patients should control more health spending directly. One goal of that is to reduce administrative costs.
Plus, physicians’ fees are only part of the story: Physicians drive most health spending, through prescribing, implanting devices, etc.
Thank you. A few minutes looking at the research discussed in this blog, that debunks the notion that preventive care prevents expensive costs later, will convince you (I trust) that your assertion is not “common sense.”