The twin goals of health insurance are to enable affordable access to healthcare and to ease financial burdens when sick or injured.
Accordingly, a major objective of the Affordable Care Act’s (ACA) coverage is explicit: its affordability. But what counts as “affordable?” For the 7 million people who have received, on average, a 76 percent reduction in premium costs in the new Health Insurance Exchanges (or “marketplaces”) created by the ACA, health coverage has certainly become more affordable.
And, for the individuals and families whose incomes are below 250 percent of the federal poverty level (FPL), the additional “cost-sharing reductions” in exchange plans that limit the out-of-pocket expenses enrollees pay toward deductibles, copayments and coinsurance also ensure that health coverage is less expensive.
But what actually happens when people start using and paying for medical services? At that point the definition of affordability becomes less clear, particularly for folks who inch into moderate income brackets, are high medical-care utilizers, or unwittingly wade into the less well-known fiscal “landmines” embedded in some of the insurance policies offered under the law.
Consider this: A 51-year-old nonsmoker at 200 percent of the FPL making just shy of $23,000 a year (less than $12 per hour for a full-time worker) can purchase a subsidized “silver” ACA exchange plan in central Virginia with a $750 deductible and out-of-pocket maximum of $1,500 for about $1,400 a year. Theoretically, the maximum financial exposure for this individual would be $2,900 annually, or about 13 percent of income.
If this same 51-year-old had an income of just over $23,000, or 201 percent of the FPL, a similar health plan’s premium, with subsidy, would cost only $25 more but would carry a $2,350 deductible and $4,500 out-of-pocket maximum, with a potential financial exposure of $6,000 a year, or 26 percent of income.
Moving up the income scale, at 251 percent of the FPL ($28,840) and now no longer eligible for the cost-sharing reductions, the subsidized health plan for this 51-year-old would cost about $2,300 a year, the deductible would rise to $3,350, and the out-of-pocket maximum to $5,500. At this level of income, the total possible annual expenditure could reach $7,800, or 27 percent of income.
Contrast this with employer-sponsored health plans, where in 2013 the average worker’s portion of the premium was about $1,000, the average annual deductible was $1,135 and the out-of-pocket maximum was often less than $3,000.
Once the out-of-pocket maximum is satisfied, insurance coverage kicks in, assuming the person did not violate the rules regarding their health plan’s provider network. Most of the exchange plans tie coverage to the exclusive use of in-network providers. The use of out-of-network hospitals or physicians incurs additional charges above and beyond the designated out-of-pocket maximum.
Similarly, although the health law requires that preventive care such as vaccines, cancer screenings and annual checkups be covered at no cost to consumers in most health plans, patients can be charged for those services if they unknowingly use an out-of-network provider. While the ACA does require that an adequate number of providers be included in a health plan’s network, choice may be restricted in more narrow provider networks. A recent McKinsey & Company analysis of 120 silver-level exchange plans found that 70 percent of the “narrow” plans did not include 30 percent of the area’s largest hospitals, potentially leading to access problems for some individuals.
Is spending 25 to 30 percent of yearly income on medical care affordable? According to the Commonwealth Fund, probably not for most Americans. They assess health care affordability in terms of high medical cost burden relative to annual income. People with insurance are considered “underinsured” if they spend 10 percent or more of total income on medical care (not including premiums), or 5 percent or more if annual incomes are less than 200 percent of the poverty line.
When those spending thresholds are met, the “underinsured” are nearly as likely as the uninsured population to forego needed medical care because of costs and the fear of incurring additional medical debt. Using this affordability measure, even when the premiums are excluded, the hypothetical 51-year-old described above would be underinsured. At 200 percent FPL, total financial exposure would be 7 percent of income and would rise to almost 20 percent of income at 251 percent FPL. A more benign public policy for those with subsidized coverage under the ACA might be to link maximum out-of-pocket expenditures to a fixed percent of income rather than to an absolute dollar ceiling.
Of course, not everyone purchasing an ACA exchange plan will meet the out-of-pocket maximum during the course of a year of medical spending, but some will, particularly those with one or more chronic illnesses. Having a chronic health condition generates an average annual medical cost of $6,032 — five times higher than for those without such a condition. Currently, more than four out of 10 American adults have at least one chronic condition and for them it will be particularly important to dig into the details of their health insurance plans with regard to cost and coverage.
No law is perfect, but the intensely partisan political acrimony in Congress has made it impossible to tweak the ACA to make it better. (NORM ‘n’ AL Note: Mr. O has done a lot of tweaking of the ACA all by himself since it was introduced, to try to improve it. As this article makes plain, the old coverage that his plan replaces was far more affordable than new Affordable Care Act coverage, especially for those who are higher-volume healthcare users.) The premium assistance, cost-reduction subsidies and overall limits on healthcare spending within the ACA have benefited many low- and middle-income individuals and families and protected them from catastrophic medical bills. But for those with chronic conditions who require a greater volume of services, acquiring accessible, affordable health care in the individual market, even with the ACA subsidies, may still remain out of reach.
[by Carolyn Long Engelhard, director of the Health Policy Program at the University of Virginia School of Medicine’s Department of Public Health Sciences, writing for THE HILL. The author gratefully acknowledges the staff at the Charlottesville Free Clinic for bringing this issue to her attention.]
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