Exchange plans hide your true financial exposure

Coverage When It Counts

How much protection does health insurance offer and how can consumers know?

By Karen Pollitz, Eliza Bangit, Jennifer Libster, Stephanie Lewis, and Nicole Johnston
Center for American Progress Action Fund, May 2009

Knowing whether insurance provides adequate coverage can be a challenge. Health insurance policies are complex products, highly variable in their design, and key information about how coverage works is not always disclosed during marketing. Further, health insurance promises protection against future, unknown events. Consumers who are healthy today can find it difficult to anticipate future medical problems and costs and harder still to evaluate how insurance might cover those needs.

Using simulated claims scenarios for different types of patients we analyzed the content of coverage under a variety of health insurance policies sold to individuals and small employers in Massachusetts and California and estimated out-of-pocket costs for care that patients might face.

This project estimated cost scenarios for patients with serious medical conditions: breast cancer, heart attack, and diabetes.

Massachusetts is unique in requiring residents to have health insurance that meets minimum creditable coverage (MCC) standards  — a state criteria for ensuring adequate coverage. As a result of this individual mandate and minimum coverage rule, health coverage tends to be much more standardized and comprehensive in Massachusetts compared to most other states. MCC standards for 2009 include inpatient and outpatient hospital and physician care, emergency services, mental health and substance abuse treatment, and prescription drug coverage.

The Commonwealth Connector (i.e., exchange) offers plans with high, medium, and low tiers of coverage — characterized as gold, silver, and bronze. Policies offered by competing insurers within each tier are supposed to be “actuarially equivalent.” Policies are said to be actuarially equivalent if, for the same population covered, they would each pay the same share of the population’s total expected medical bills. However, for any given patient, actuarially equivalent policies might offer different protection.

To illustrate how coverage can vary — and how challenging it might be for consumers to appreciate the differences — we mapped the simulated claims scenarios against specific health insurance policies.

Figure 2. Seemingly similar Massachusetts policies work differently

Plan C - Bronze
Deductible  $2,000
Patient out-of-pocket costs
  Breast cancer  $12,907
  Heart attack  $8,400
  Diabetes management  $960

Plan G - Bronze
Deductible  $2,000
Patient out-of-pocket costs
  Breast cancer  $7,983
  Heart attack  $6,237
  Diabetes management  $4,383

Massachusetts has made great strides toward assuring that all residents will have basic health insurance protection, and the Commonwealth Connector has surpassed other states in the amount and quality of comparative health plan information provided to consumers. Yet even in that state, gaps in coverage persist and consumers may not easily appreciate what those gaps could cost if they get seriously ill.


By Don McCanne, M.D.

These boring minutiae on benefits of two actuarially equivalent plans offered through the Massachusetts health insurance exchange seem like they would have little relevance compared to the major features of the Affordable Care Act. Quite the opposite. These numbers demonstrate that the concept of transparency in shopping for plans in the ACA exchanges is a cruel fiction. It is impossible to know what your out-of-pocket expenses will be for any given plan that you select.

In ACA, just as in the Massachusetts exchange, plans in the same metal tier (bronze in the example above) must be actuarially equivalent; that is, they must pay the same average percentage of covered expenses, leaving the balance to be paid the patient. But the definition of what is covered can vary, even while maintaining actuarial equivalency. Thus, even though the plans have an annual out-of-pocket limit, that applies only to covered services, which can vary by plan.

This study looked at expected expenses for three serious conditions and then calculated what each plan would cover. The out-of-pocket expenses often exceeded the plan limit because of the cost of essential services that were not covered.

Think about this. When electing a plan you have to decide in advance whether or not you are going to have breast cancer or develop diabetes or have a heart attack next year. Then you have to see how much out-of-pocket expenses you will be left with after the plan makes its payments.

In the case of breast cancer, even though Plans C and G are actuarilly equivalent, you would choose Plan G with out-of-pocket expenses estimated to be $7,983 since Plan C would have out-of-pocket expenses of $12,907.

But wait. Suppose you are going to develop diabetes instead. Then you need to pick Plan C with out-of-pocket expenses of $960, since Plan G would entail $4,383 in expenses. Or if you are going to have a heart attack, you would save some with Plan G at $6,237 as opposed to C at $8,400.

But then consider this. These numbers were not available in the plan information provided by the exchanges. They were not even available in the detailed insurance contracts that you receive after you purchase a plan. These numbers had to be calculated by policy experts who meticulously reviewed each plan. They didn't even include costs incurred because of care unavoidably obtained out-of-network. Further, because the calculations are quite laborious, they did not provide them for the hundreds or thousands of other disorders you could develop next year. But then, really, who knows what next year holds for us?

For ACA, the calculations would be even more difficult. Although there are ten categories of essential health benefits that must be included in the coverage, the insurers are allowed to vary the benefits within each of the ten categories as long as they remain actuarially equivalent. Imagine the calculating tool that would be required to compare plan coverage. It would challenge the Obamacare exchange computer systems in complexity.

The bottom line? Because of private health plan chicanery, it is impossible to know what expenses you may face in the next year. But if you develop a major disorder, there is a great risk that you will have to pay more than the out-of-pocket limit that is posted on the exchange plan descriptions.

For no more than our current national health expenditures, we could have had prepaid health care with first dollar coverage for everyone. We still can by enacting a single payer national health program - an expanded and improved Medicare for all.

(Those attending the Boston meeting of PNHP this past weekend will recognize the numbers presented in Figure 2 above. Our thanks to Steffie Woolhandler and David Himmelstein for bringing them to our attention.)