Now that the debate about the fate of the Affordable Care Act has moved from “repeal and replace” to “repair” and the insurance market implications of eliminating the mandate have become more resonant, it makes sense to focus on changes in the Marketplaces that actually may accomplish making coverage better, attracting healthier people to risk pools to lower costs, and improving access to care.
While they differ in the solutions they envision, both Republicans and Democrats view stabilization of the risk pools as essential to making insurance affordable. Congressional leadership backs re-establishing high risk pools to remove sicker people from individual insurance markets to keep premiums lower there. While high risk pools remove people with medical needs from the insurance market, the analyses of existing high risk pool proposals indicate that they would insure far fewer people at substantially greater cost to people enrolled in the high-risk pools.
To sustain coverage for people with pre-existing conditions at the same level at which they currently have continuous insurance under the Affordable Care Act, insurance pools will need to be inclusive. This means they need to attract younger and healthier people to offset the enrollment of people with complex medical needs and pre-existing conditions. With risk pool improvement comes more affordable premiums. A number of solutions have been proposed to make inclusive risk pools healthier, including increasing the subsidies for young people or increasing the spread of the age-related rate banding. In addition to these approaches, there is a solution that would not require additional legislation or appropriations: fix “the deductible problem” that erodes the value of insurance and drives healthier people of all ages away from purchasing insurance that they believe they are unlikely to use.
Average deductibles in the Marketplaces in 2016 amounted to $5,765 for bronze plans and $3,064 for silver plans. Most of the reports on the impact of high deductibles on consumer choices are anecdotal. For most Americans, however, the deductibles alone are higher than the penalty for not having insurance – without even taking into account the premium costs. A household would have to have an income over $122,000 in order to owe a tax penalty of $3,064 (the average silver plan deductible). For a person in a household with the national median income of $56,516, the tax penalty for not having insurance would be $1,412 -- or less than half the cost of the deductible alone for the average silver plan and less than a quarter of the deductible for a bronze plan.
In other words, the incentives are upside down. This easy arithmetic drives younger and healthier people away, making risk pools worse, and contributing to higher premiums. Further, these high deductibles could have a boomerang effect. Designed to help control spending, these deductibles may cause people to forgo routine care that would foster early detection of disease and care management that would reduce expensive ER visits and inpatient admissions while producing better health outcomes.
To improve risk pools and stabilize the market without resorting to expensive and small high-risk pools that underserve the need, standardized lower deductibles should be a mandatory element of individual market insurance benefits. This can be accomplished at both national and state levels. Deductibles should be designed to be lower than the tax penalty for non-insurance for the preponderance of people participating in the Marketplaces, creating incentives for healthier people to enroll.
Under current benefit design, insurance companies may be undermining their own risk pools, hoisting themselves on a petard of high deductibles. It is possible that the resulting improvements in the risk pools from lower deductibles could offset their impact on premium prices. We need rigorous actuarial analysis to validate this possibility. Lowering deductibles, however, could bring additional benefits. True costs of coverage would be reflected in the premium (rather than variable out-of-pocket consumer costs). This would spread the costs more evenly over the entire risk pool and ensure that people receive the full benefit of the premium tax credits by including more of the true cost of care in the premiums (which will further lower consumer costs and encourage a positive spiral of enrollment by healthier people). It would also maximize early treatment for health problems and avoid the risk-based enrollment opt-outs that otherwise will continue to plague insurance markets.
Inclusive risk pools offer the opportunity to insure stable insurance coverage for all Americans, regardless of their changing health status. Incentives to purchase insurance, therefore, must be aligned with the ultimate objective of achieving healthier risk pools and providing affordability. Capping deductibles to attract healthier people not only makes coverage more desirable, it sustains a viable market for both consumers and insurers.
The opinions expressed in this blog post are the author's own and do not necessarily reflect the view of AcademyHealth.
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