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Why do insurers set out-of-pocket maximums lower than required?

Many Obamacare Plans Set Out-Of-Pocket Spending Limits Below The Cap

By Michelle Andrews
Kaiser Health News, December 12, 2014

Seventy-four percent of 2015 silver level plans’ out-of-pocket spending caps are below the $6,600 spending limit allowed for individual plans and $13,200 maximum for family plans, according to Avalere, a consulting firm. The average out-of-pocket maximum for 2015 individual silver plans will be $5,853, says Caroline Pearson, a vice president at Avalere. Silver was the most popular plan type this year, selected by about two-thirds of enrollees.

After a policyholder reaches the out-of-pocket spending limit during the year, the insurer pays all the bills, unless, for example, they involve doctors and hospitals not in the health plan’s network.

The vast majority of other plans also feature lower limits on out-of-pocket spending—which includes deductibles, copayments and co-insurance, but not premiums. Seventy-one percent of bronze plan spending limits were below the allowed maximum (with an average spending limit for single coverage of $6,381), as were 94 percent of gold plans (average limit, $4,458) and 98 percent of platinum plans (average limit, $2,145).

The tradeoff for lower out-of-pocket spending maximums may be a higher deductible, says Pearson. The average deductible for silver plans will increase 7 percent in 2015, to $2,658. Other metal-level average plan deductibles are increasing as well.

Higher deductibles are likely helping keep premiums low, and low premiums are what consumers are looking for, Pearson says.

Kaiser Health News: http://kaiserhealthnews.org/news/many-obamacare-plans-set-out-of-pocket-...

Avalere: http://avalere.com/expertise/managed-care/insights/avalere-analysis-cons...

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Comment:

By Don McCanne, MD

This Avalere report reminds us that, at a given actuarial value of a health plan (average percent of the health care costs covered by the plan), there is a reciprocal relationship between the maximum out-of-pocket spending for which the insured is responsible and the deductible that must be met before the plan begins paying for health care.

Ignoring other variables, such as waiving the deductibles for certain preventive services, let’s look at the 2015 average deductibles and average maximum out-of-pocket spending (MOOP) for the four metal tiers representing different levels of actuarial values (AV) in the insurance exchanges. The numbers are for individual plans that must be capped at a MOOP of $6,600 or less.

  • The bronze plans (AV 60%) have an average deductible of $5,249 with an average MOOP of $6,381.
  • The silver plans (AV 70%) have an average deductible of $2,658 with an average MOOP of $5,853.
  • The gold plans (AV 80%) have an average deductible of $1,080 with an average MOOP of $4,458.
  • The platinum plans (AV 90%) have an average deductible of $189 with an average MOOP of $2,145.

It is obvious that, in these examples, as AVs increase, both the deductibles decrease and the MOOPs decrease. The higher the AV value, the more complete is the coverage. But then why are both adjusted? Why didn’t the actuaries set the MOOP for each plan at the statutory maximum ($6,600) and simply adjust the deductibles? That way the higher the premium paid, the lower the deductible would be.

If you look at the platinum plan (90% AV) the average deductible is only $189. With the essential health benefits and the networks remaining the same, in order to push the AV up to 90%, the actuaries had to reduce the maximum out-of-pocket to an average $2,145. For the gold plans, in order to have a product with a standard $1000 deductible ($1,080 with 2015 adjustment), the actuaries also had to lower the MOOP to meet the 80% AV.

The bronze plans, with the lowest AV (60%), had to push their MOOP up to close to the statutory maximum - $6,381, just below $6,600 - but then that required an average deductible of a whopping $5,249 - quite a blow for the low-income individuals and the young invincibles who would be attracted to the low premiums of these plans.

The silver plans, which about two-thirds of exchange purchasers select, have a more balanced deductible and MOOP. So why didn’t they push the MOOP up to the maximum ($6,600) so that they could offer a more reasonable deductible? For one reason, having greater cost sensitivity through higher deductibles advances the consumer-directed approaches of those ideologues who place more importance on the theory of moral hazard than they do on patients getting the care that they need.

Another reason is that, since about 80% of the population uses only about 20% of health care, most insurance plan enrollees would never meet their deductible. With the silver plan deductible of $2,658, insurers would be paying for almost no care for about four-fifths of their enrollees (except preventive services - a very small part of our health care services). The extra that would have to be paid by the insurers for having a modestly lower MOOP would apply to only about one-fifth of their enrollees, most of whom would far exceed their deductibles anyway.

Left out of this are considerations of the consequences of obtaining care out-of-network, even if inadvertent, and of being required to pay retail prices for services that are later determined to not be covered benefits.

Seems like a pretty good deal for the insurers. Isn’t it our turn to get a good deal? We would have to get rid of the insurers first.