Does health insurance improve health?

Whether health insurance improves health became a controversial topic when a large quasi-experimental study found mixed results regarding the effects of Medicaid on health. Before we examine that study, it is worth discussing the difficulties in answering this question.

People who gain insurance generally do so because they have become sick, or so poor that they are eligible for public insurance or subsidies to purchase insurance. As such, these people are not comparable to the population that already had insurance. They are likely to either make larger than average gains (if insurance does indeed improve health) or smaller than average gains (if insurance does not improve health). And if there are heterogeneous effects, then the effects could cancel – for example, insurance may work for people with injuries, but not for those with chronic illnesses.

The real world offers few experimentally pristine conditions. One option is for researchers to conduct their own experiment. The RAND Health Insurance Experiment, conducted from 1973 to 1982, assigned families to one of 14 different plans, each with a different cost-sharing structure. The study found little evidence that higher cost-sharing levels impacted health, except for one group – the poorest group who began the experiment with high blood pressure. For this group, only those randomized to a plan with no cost-sharing experienced a reduction in blood pressure, suggesting that the generosity of insurance may be clinically meaningful.

Medicare provides useful “quasi-experimental” conditions, because those who have just become eligible for Medicare are not much different than those who been eligible for just a short while. No one chooses to turn 65 – it just happens. Exploiting this design, researchers found that Medicare improved access to breast cancer screening, especially among black and Hispanic women; and that it reduced deaths among emergency department patients by 20%.

Finally, Oregon provided researchers an opportunity to study the effects of insurance when it decided to expand its Medicaid program. In 2008, Oregon offered the chance to apply to Medicaid to 35,000 people who were drawn randomly by lottery from a list of 90,000. Because not all applied, and others were ineligible, only 30% enrolled.

In the first year of the expansion, Medicaid increased the probability that recipients reported their overall well-being as “excellent” or “good” (compared to “fair” or “poor”) by 25%; reduced depression by 30%; and reduced financial hardships, such as skipping paying bills because of medical expenses, and having unpaid medical bills sent to a collections agency. On the other hand, the authors did not find evidence that Medicaid reduced blood pressure, HDL or total cholesterol, glycated hemoglobin, or overall cardiovascular risk. Medicaid effects on health persisted after 2 years of the program.

These studies do not answer the question about how much coverage is warranted, or how benefits should be structured, but they do point to the worthiness of health insurance coverage. Insurance improves access to care, mental well-being, and financial stability. For some populations, it may not improve physical health, but for others, it saves lives.

Health insurance: the basics

Let’s back up several steps and discuss the basics of health insurance in the U.S. There is too much to cover in one blog post, but here is an overview.

Sources of Insurance: Public and Private

Most individuals (91%) had some type of health insurance coverage during the year in 2015 (the most recent data available). Only 9% were uninsured for the entire year. Sixty-seven percent had private insurance – insurance sponsored by a state-licensed health insurer or a self-funded employee health benefit plan; and 37% had public insurance – insurance sponsored by the government. The percentages do not add up to 100% because a number of individuals, especially the elderly, had both private and public insurance.

The federal government, state governments, and local and city governments sponsor public insurance plans, but the largest plans are Medicaid, the program for the poor and disabled; Medicare, the program for the elderly and disabled; and military health care plans.

The privately insured have two options for coverage – group (employment-based) or individual (direct purchase) coverage. Individuals purchase group insurance through their job, or direct purchase insurance through a broker or through their state’s “Obamacare” marketplace/exchange. Both types of policies can cover single individuals, couples, or families.

The figure below summarizes the distribution of health insurance coverage among individuals in 2015.

Source: Current Population Survey 2016, March Supplement

Types of Plans

Private health insurers offer several different types of plans. The most common is also the least restrictive, a preferred provider organization (PPO), which offers consumers a large network of providers (hospitals, doctors, laboratories, imaging facilities, etc.), pays for care outside of the network (though at a less generous rate), and does not generally require referrals for specialty care.

At the opposite end of the spectrum is the most restrictive type of plan, a health maintenance organization (HMO). Why would someone choose a restrictive plan? An HMO generally offers a lower premium (the monthly cost of belonging to the plan) in exchange for a smaller network of providers, refusing to pay for care outside of the network, and requiring referrals for specialty care from a primary care gatekeeper.

In between these two types of plans, in terms of restrictiveness, is the point-of-service (POS) plan. POS plans combine features of both PPOs and HMOs, generally requiring referrals for specialty care, but paying for care outside of the provider network. Like PPOs, these plans also tend to have wide provider networks.

An exclusive provider organization (EPO) also lies somewhere between a PPO and an HMO, but is more restrictive than a POS plan. Like HMOs, these plans have narrow provider networks and limited, if any, out-of-network benefits (i.e., the plan will generally not pay for care outside of the network). Unlike an HMO, however, EPOs usually do not require referrals for specialty care from a primary care gatekeeper.

An increasingly common type of plan – in fact, now the second most common after a PPO – is a high deductible health plan (HDHP). I have discussed these plans and their associated savings options – for example, health savings accounts – in a previous post.

It is worth noting that the lines between all of these plans can blur, and that they tend to share the same features. All of the above can be categorized under managed care plans. There still exist non-managed care plans, called conventional or indemnity plans, though these are increasingly rare. Indemnity plans generally pay a fixed amount per hospital day or episode to the patient (rather than to the provider). There are managed indemnity plans as well, but these, too, are rare.

The figure below illustrates the trend in group (employment-based) health insurance plans since the 1980s. The survey did not ask about EPOs, which are a newer product, and it did not ask about HDHPs until 2006. As shown, indemnity plans are increasingly rare, and HDHPs are on the rise, though PPOs are still the most popular. The HMO “heyday” was in the late 1990s, and now are less popular.

 

Source: American Hospital Association, 2016
*POS plans not separately identified in 1988
**Survey did not begin asking about HDHP plans until 2006

Strictly speaking, public insurers are not managed care plans because they do not negotiate with a network of providers for a discounted rate; rather, they set an administrative rate. Increasingly, however, public insurers contract with private insurers to offer beneficiaries the option to enroll in managed care plans. For example, one-third of Medicare beneficiaries have elected to forgo traditional “fee-for-service” Medicare and instead have enrolled in private Medicare Advantage (Medicare Part C) plans. Medicare Advantage plans may be HMOs, PPOs, or any other type of managed care plan. And all states except three – Alaska, Connecticut, and Wyoming – offer or require managed care for Medicaid enrollees.

Cost-sharing

Most private and Medicare plans share similar cost-sharing features. Cost-sharing can refer to the amount that you must pay out-of-pocket, or the amount that your plan must pay out of pocket, because together, you share in the costs of your care. Pay attention to the language that your plan uses so that you do not get confused about who is sharing in what costs. In general, there is a tradeoff between generosity of benefits (low cost-sharing, large network of providers) and a low premium.

The same cost-sharing features can be found in most plans – public or private. A deductible is the amount that you must pay before your health insurance coverage pays for any care at all. For example, you  might be required to pay $500 before your insurance pays for care. The deductible is usually higher for a family plan than for an single plan. What distinguishes an HDHP from other plans is just that the deductible is very high, and that HDHPs may be paired with savings options such as health savings accounts. Not all care is subject to the deductible; for example, your insurer may cover preventive visits even before you have paid your deductible.

A copayment (copay) is a flat fee per visit, hospital stay, or other episode of care. For example, you might have a $20 copayment for a physician office visit, or a $300 copayment for an inpatient hospitalization. Coinsurance is a fee that is a percentage of the price of the visit; for example, 20% of the price of an ambulatory surgery or 50% of the price of a brand-name drug. Note that hospitalizations generally have two separate fees – the facility fee and the physician (professional) fee, so the price of a hospitalization is the combination of the two.

An out-of-pocket limit or stop-loss is the amount that you must pay before your insurance covers 100% of your expenses.

Some, but not all, health plans also cover outpatient prescription drugs. All health plans in the state health insurance exchanges must cover prescription drugs. A formulary is a list of covered drugs. A closed formulary means that the plan will not pay for drugs not listed on the formulary (much like an HMO will not pay for care outside of the provider network), while an open formulary means that the plan will pay for drugs not listed, but at a lower rate (much like a PPO will pay for care outside of the provider network, but at a lower rate). Formularies usually have tiers, with lower tiers corresponding to lower rates of cost-sharing for the enrollee. For example, drugs in tier 1 might be generic drugs, drugs in tier 2 might be preferred brand-name drugs for which the insurer can obtain a discounted rate, drugs in tier 3 might be non-preferred brand name drugs, and drugs in tier 4 might be biologic drugs that can only be administered in a doctor’s office. Like provider networks and cost-sharing structures among health plans, formularies vary widely among drug plans.

For more definitions, and a cost-sharing example, go to healthcare.gov’s Glossary of Health Coverage and Medical Terms.

 

What is the Republicans’ repeal and replace plan? Part 4 of 4: health savings accounts

This is the final post in a series explaining major provisions of the American Health Care Act, the House Republican plan to repeal and replace the Affordable Care Act (ACA). Since I first began writing about the plan, the committees marking it up have made changes to it in order to win both more conservative and more moderate votes in the House. For example, states would have the option to impose work requirements on Medicaid beneficiaries and receive a global block grant (rather than a per-capita block grant/per capita allotment) for children and non-disabled, non-elderly adults. A per-capita block grant, which I discussed in my second post about the plan, increases federal contributions as enrollment increases. A global block grant, however, is a flat annual payment to states regardless of changes in monthly enrollment. Further, because the CBO noted that older Americans would see the highest increases in premiums, a new amendment makes technical changes that would allow states to make supplemental subsidies.

One of the major provisions of the American Health Care Act is the strengthening of health savings accounts (HSAs). I explained what HSAs are in a previous post, so here I will focus on two things: 1) the changes in the bill to current law; and 2) the prospects of these changes for accomplishing the goals of increased coverage and decreased health care costs.

Effective January 1, 2018, the Republican plan would increase the tax-free contribution limit from $3,400 to $6,550 for an individual and $6,750 to $13,100 for a family, with increases each year indexed to medical inflation. There is no change to the catch-up contribution, which is still $1,000 for each individual over age 55 (each spouse may make a $1,000 contribution, even to the same HSA). The tax penalty for withdrawals used for non-qualified medical expenses would be reduced from 20% to 10%.

Note that contribution limits increase every year, but that historical increases are usually on the order of about $50 for both individual and family coverage. An increase of almost 100% in each category, then, represents a fundamental change in the scope of these plans.

If this blog had a theme, it would be that policies have tradeoffs. Only those in high-deductible health plans (HDHPs) are eligible to enroll in an HSA, so the two policies are meant to be coupled. Together, they have advantages over traditional plans. HSAs are portable from job to job and into and out of employment, while employment-based insurance is tied to, well, employment. And ordinarily, only those with employment-based insurance may obtain tax benefits, but HSAs allow even those individuals without a job to obtain some of those benefits by contributing tax-free dollars to their accounts.

In theory, consumers using funds from their HSA to pay down their high deductible will shop for the highest-value care. But without information on price and quality, it is difficult to determine which care has the highest value. In practice, then, high-deductible plans appeal to healthier consumers, who do not need to make many health care decisions (see here, here, and here). What looks like cost-savings, then, is actually just consumers who were lower-cost at the start. There is insufficient evidence that HSAs have reduced cost growth. With better price and quality transparency tools, HSAs might become more viable if the premium savings (and tax savings, in the individual market) were high enough to offset the high deductible.

Summary – All 4 parts

As I write this, the House vote on the American Health Care Act has been delayed. The ideological divide between Republicans and Democrats resides in the debate over the meaning and purpose of insurance. While Democrats believe that a health insurance system should transfer income from the healthy to the sick, regardless of whether individuals have already become sick, Republicans believe that individuals should not have to pay for services that they do not wish to have, or cover the cost of illnesses that others have already contracted.

But under the Republican plan, in which individuals would choose covered services à la carte instead of as a package of essential benefits, many plans might withdraw services from coverage. This scenario is not hypothetical; prior to the ACA, individual policies were not required to cover maternity coverage, mental health services, and even prescription drugs, and many did not. Suppose that one plan did, for example, cover maternity benefits, while others did not; then that plan would surely attract many pregnant women and their families, and premiums for that plan would be relatively high, especially if families could switch the following year.

While not everyone is ill, everyone is at risk for illness, and the purpose of insurance is to pool the collective risk of illness in order to make costs more predictable for any one insurer. A portion of my premium, then, might go to cover maternity care for someone in my risk pool, but in turn, their premium might go to cover a hospitalization for my skiing accident. This scenario is not socialism – it is insurance.

What is the Republicans’ repeal and replace plan? Part 3 of 4: high risk pools

This is part 3 in a series of posts analyzing the American Health Care Act, the House Republican plan to repeal and replace the Affordable Care Act (ACA). One of the major provisions of the bill is to establish a Patient and State Stability Fund to finance state efforts to lower and stabilize premiums in the health insurance exchanges. States may use these funds to: 1) establish or maintain high-risk pools – separate individual insurance markets for people with at least one high-cost chronic condition who do not have access to insurance through an employer; 2) provide incentives, e.g. to insurers to employers, to stabilize premiums; 3) provide cost subsidies for high-cost enrollees; 4) promote insurer participation in the exchanges; 5) increase access to preventive and dental services; 6) increase payments to providers for services; or 7) assist with cost-sharing for enrollees.

The Patient and State Stability Fund, therefore, does more than fund high-risk pools, but its primary strategy is to separate high-cost enrollees in order to bring down premiums for healthy individuals. In contrast, the ACA sought to pool the sick with the healthy, in order to lower premiums for the sick – even if it meant higher premiums for the healthy.

The recent Congressional Budget Office (CBO) score reflects the Republican strategy to move away from risk pooling. The CBO is an independent federal agency that estimates the costs an benefits of a bill over a ten-year time horizon so that Congress can vote on it with as much information as possible. The majority leadership in Congress is responsible for appointing the CBO director. In its score of the American Health Care Act, the CBO noted that the Patient and State Stability Fund mitigates the risk to insurers of attracting high cost enrollees, which would encourage participation by more insurers and put “downward pressure” on premiums in the individual market.

But these benefits would accrue to young, healthy individuals whose premiums have risen since the ACA, not older, sicker individuals who could not obtain insurance before the ACA. Rather, while average premiums are estimated to fall, premiums for this latter, sicker group are estimated to rise, quite steeply (the CBO score also noted this heterogeneous effect of the law). Older, low-income individuals would be particularly affected because, as I have discussed in a previous two post, premium subsidies would no longer be based on age.

Separating the sick from the healthy is not a new idea. States have had high-risk pools since the mid-1970s. Before the ACA, over half the states had high-risk pools, which were available to individuals who could not obtain insurance because of a pre-existing condition. This insurance, however, was expensive for both the individual and the states, and was not particularly generous (e.g., most states imposed high cost-sharing, low lifetime limits on coverage, and waiting times for pre-existing conditions to be covered for some individuals) and only a handful of states provided premium subsidies for low-income enrollees. As a result, enrollment was very low. After the ACA was passed in 2010, the federal government set up its own temporary high-risk pool – the Pre-existing Condition Insurance Program (PCIP) – to cover the remainder of the states (and gaps in the other state programs) until insurers were required to cover pre-existing conditions in 2014.

Whether policymakers wish to separate the sick from the healthy involves tradeoffs. True health insurance, by definition, transfers income from the healthy to the sick, and the ACA upheld this spirit by ending high-risk pools, requiring individuals to purchase insurance, and strictly limiting the additional amount that insurers could charge older people in the exchanges for their premiums. On the other hand, strictly speaking, true insurance does not insure against the “risk” of an event that has already occurred, such as chronic illness. In this sense, the American Health Care Act upholds the spirit of true insurance by separating those who have already become sick from those who could become sick. The American Health Care Act would fund high-risk pools, repeal the individual mandate, and allow insurers to charge more to older individuals in the exchanges. Before evaluating the bill, one must understand these tradeoffs.

What is the Republicans’ repeal and replace plan? Part 2 of 4: Medicaid block grants

This post is the second in a four-part series in which I explain major proposals in the American Health Care Act (excellent summary here), the Republican plan to repeal and replace the Affordable Care Act (ACA). In this post, I will analyze the proposal to cap per-enrollee Medicaid spending.

The proposal is not only a change in ACA policy, it is a fundamental change in how Medicaid has been financed since its passage in 1965. A state-run program for the poor, ill, and disabled, Medicaid must meet or exceed certain standards of eligibility and benefits to receive federal funding. All states exceed these standards for at least some categories of beneficiaries. The federal government contributes 50-83% of every dollar of Medicaid spending; this percentage contribution is called the Federal Medical Assistance Percentage (FMAP), and is based on average per capita income in the state. The financing system was designed this way so that states could expand benefits, eligibility, and payments to providers, without straining their budgets.

Under the American Health Care Act, the federal government proposes to cap the FMAP beginning in 2020. Contributions would increase per Medicaid enrollee, but not with total spending. The capped amount is based on states’ spending per enrollee in 2016, and would increase each year with medical prices, but not, unlike with FMAP matching funds, with:

1. expanded benefits;
2. increased payments to providers;
3. a higher volume of services per enrollee;
4. prices that rise faster than the medical inflation index

Let’s consider these scenarios in more detail, under the hypothetical implementation of the American Health Care Act. First, suppose that a state wanted to add dental benefits or an opioid treatment program. The federal government would not share in the cost of this benefit expansion; rather, the state would have to bear the entire cost. Second, Medicaid notoriously pays fees below the cost of most services (below even Medicare fees). As a result, Medicaid beneficiaries may have difficulty accessing providers, who limit the proportion of Medicaid patients that they see, if they see any at all. States wishing to rectify this issue could increase payments to providers, but again, the federal government would not share in the cost of this payment increase. Third, some states might experience more rapid health care use increases among their Medicaid enrollees than in other states. For example, some states have more rapidly aging populations, or populations that are becoming more ill because of changing mixes of occupations or demographics. Older, sicker individuals are apt to use more medical care, but federal payment does not increase per enrollee. Fourth, federal payment to states increases with the medical portion of the Current Population Index (CPI), which estimates prices for a “market basket” of goods. The basket is based on national consumer prices for goods and services. This index is a problematic target for federal payment increases because national prices may not reflect the mix of goods and services used by Medicaid enrollees, whose service use may be more intensive and thus more inflationary; and because Medicaid beneficiaries do not pay out-of-pocket for the same types of care as privately insured patients, so the medical CPI could overestimate inflation for some services and underestimate it for others (for example, adult dental and vision services, which most states do not cover). When the CPI underestimates Medicaid price inflation, the federal per-enrollee contribution to states will be too low.

The New York Times analyzed which states might fare better and worse under a Medicaid block grant program. All else equal, states that spent more per enrollee last year would do better, since the block grant is based on 2016 spending levels. States such as New York, Massachusetts, and Alaska, therefore, would receive higher federal contributions than Florida, Georgia, or Nevada. Nevada could also face higher expenditures per enrollee without the support of the federal government, as its population of poor, elderly individuals is growing, as in neighboring Utah and Arizona. In Pennsylvania, Iowa, and North and South Dakota, the poor, elderly population is declining.

Finally, under the ACA, states that expanded Medicaid up to 138% of the federal poverty level received an enhanced FMAP for newly eligible enrollees – 100% in 2014, phasing down to 90% by 2020. The American Health Care Act proposes to continue to match contributions at this rate until 2020. In 2020, however, enrollment under Medicaid expansion would freeze, and the expansion population would become subject to the spending cap, leaving expansion states to find ways to limit spending on enrollees for whom they previously had very little financial responsibility.

Update: What is the Republicans’ repeal and replace plan? Part 1 of 4: tax credits

Note: I first wrote this post when Republicans had released talking points, but not a bill. Recently, House Republicans released a draft bill, which they are marking up in two committees. I have now updated this post to reflect one change from the talking points: tax credits will be based on age AND income, not just age, likely because of criticism received upon releasing the initial memo. I will also briefly outline the provisions of the bill.

Congressional Republicans are currently marking up a bill to repeal and replace the Affordable Care Act (ACA), otherwise known as Obamacare.

The American Health Care Act proposes to REPEAL:

-The employer “pay-or-play” mandate that requires large employers to either offer health insurance or pay a penalty

-Subsidies for cost-sharing (deductibles, copayments, and coinsurance) in the health insurance exchanges

It will REPLACE:

-The individual mandate to purchase health insurance with an optional 30% surcharge on monthly premiums (for up to one year) for individuals whose coverage lapses for two months or more, in the individual and small group markets

-Income-based premium subsidies in the health insurance exchanges with age- and income-based premium subsidies. Subsidies cannot be used to purchase plans that cover “elective” abortion – abortions that are not for cases of rape or incest or to save the life of the mother, and can be used outside of the exchanges for plans that are not ACA-compliant.

-Premium age bands limited to a 3-fold difference between the highest and lowest premiums (i.e., the premiums for the oldest individuals cannot be more than 3 times those of the premiums for the youngest individuals) with age bands limited to a 5-fold difference between the highest and lowest premiums

-Federal Planned Parenthood funding (except for abortions) with a one-year freeze on funding altogether

It will CHANGE (provisions not part of the ACA):

-Medicaid will no longer receive federal matching funds for every dollar of state spending, but rather receive a “block grant,” a per capita amount based on 2016 Medicaid spending.

-Federal funding for “high-risk pools” to relieve insurers of the burden of high-cost enrollees. $100 billion over 10 years.

-The contribution limits to health savings accounts. In 2017, individuals may contribute up to $3,400 for an individual and $6,750 for a family. In 2018, the plan proposes to raise this contribution limit to $6,550 for an individual and $13,100 for a family. The contribution limit is raised every year to keep up with inflation, but this increase surpasses inflation by quite a bit.

It will KEEP:

-Requirement that non-grandfathered plans cover pre-existing conditions and essential health benefits, and prohibition on annual limits for essential benefits.

-Prohibition on lifetime benefits for essential health benefits for all plans.

-For plans with dependent coverage, this coverage must be offered until age 26.

-“Cadillac” tax of 40% on insurers and employers for plans whose premiums exceed a threshold amount for that year

I will be discussing the new provisions in a series of posts: 1) tax credits; 2) Medicaid block grants; 3) high risk pools; 4) health savings accounts.

Republicans propose to replace existing premium subsidies with their own. Under the ACA, households earning between 100% and 400% of the federal poverty level (in 2017, $12,060 for an individual and $24,600 for a family of 4 in every state except Alaska and Hawaii) may use subsidies to purchase a health insurance plan in the exchange. Further, subsidies increase as income decreases. Under the Republican plan, however, subsidies are based on income and age, and recipients are not restricted to the exchanges. The subsidy is $2,000 for individuals aged 20-29, and increases $500 for every ten-year age bracket up to $4,000 for those aged 60 and older. Credits phase out for individuals earning over $75,000 and joint filers earning over $150,000. Subsidies under the Republican plan could also be used to purchase COBRA (continuing coverage through an employer). Any remaining funds not used to purchase a plan may be deposited into an HSA. In both the ACA and the Republican plan, subsidies are offered as tax credits that are advanceable (households may receive them before they file taxes) and refundable (even households that don’t pay taxes may receive them).

As with any policy, there are pros and cons to the Republican tax credit proposal. While the objective of the ACA is universal health insurance coverage, the objective of the Republican plan is choice and autonomy, and to some extent, policymakers must trade off these objectives. Indeed, consumers have limited choices of plans and benefit structures in the exchanges, where plans are limited to four standardized “precious metal” tiers of coverage – bronze, silver, gold, and platinum. But the ACA requires consumers to purchase plans on the exchanges for several reasons: 1) insurers require sufficient numbers of healthy enrollees in order to remain in business; 2) standardizing plan benefits limits adverse selection (sicker enrollees unexpectedly choosing more generous plans, such that the premium for those plans cannot cover their cost, which can lead to the derailment of the individual market); and 3) exchange plans are required to offer consumer protections, while those outside of the exchanges may be grandfathered, and thus exempt from some of these protections.

Grandfathered plans are plans that were in existence before March 23, 2010, and have not undergone substantial changes in benefits since then.* These plans need not comply with many of the ACA protections, including guaranteed issue of a policy to anyone who applies, coverage of pre-existing conditions, community rating of premiums (premiums that do not vary with health status), or coverage of essential health benefits. Here is more information on what grandfathered plans need and need not cover (table on pp. 16-17).* Grandfathered plans may be less expensive because they offer fewer benefits to healthier enrollees, not because they offer superior coverage.

Similarly, tying subsidies to age rather than to income is aligned with Republicans’ objectives of choice and autonomy, rather than universal coverage. Affordability is the number one reason that people are uninsured (and was before the ACA as well). As such, in crafting their legislation, Democrats increased subsidies as income declined. Republicans worry that this structure disincentivizes earning, and literature in the subfield of labor economics supports this view. (The literature generally shows that when these disincentives are removed, individuals are more likely to work). Under the Republican plan, then, low-income households would need to earn an additional amount – the amount they are being subsidized – in order to do as well as they are under the ACA (plus some extra, as we will talk about, since Republicans propose to tax premiums).

In general, income increases as age increases, so the subsidy proposed by Republicans is regressive. Increasing the subsidy with age encourages the aged to sign up for insurance, but this group is already well covered; the uninsured are disproportionately under 35, and it is this younger group that insurers so desperately need to stay afloat.

The Republican tax credit proposal differs in another respect from the ACA. Subsidies cannot be used to pay for plans that cover “elective” abortions (abortions for pregnancies that are not caused by rape or incest or that are not necessary to save the mother’s life). Under the ACA, states decide whether plans may pay for abortions. While plans in 23 states have banned or restricted coverage, plans in 28 states offer coverage.

The ACA is funded in large part by the individual and employer mandates (see Table 2), and it is not clear how the Republicans will fund a plan without these mechanisms, or how much their plan costs. The Congressional Budget Office (CBO) will release a “score” on March 13, an estimate of its costs and revenues over a 10-year time frame, but the House committees intend to mark up the bill and vote on it before seeing the CBO score.

*It is difficult to estimate how many plans are grandfathered, because each state determines eligibility for grandfathered status, and not all states report the breakdown of plans in the individual market. But it is safe to estimate that the proportion of the market is small, but non-trivial; for example, in both Texas and New Hampshire, grandfathered plans constitute 10% of the individual market by total enrollment. An increase in demand for these plans would not affect their grandfathered status, though a change in their benefit structure could.

What will happen to the Affordable Care Act (Obamacare) if Congress repeals it?

In order to pass legislation to repeal the Affordable Care Act (ACA), also known as Obamacare, Congress would in theory need a simple majority – 50 votes – in each house of Congress. But Senate rules allow opposing parties to filibuster, or delay, voting, during which time the legislation is further debated. 60 votes are usually needed to break a filibuster (i.e., end debate and resume the vote).

While Republicans are the majority party in the Senate, they do not have a super-majority, or 60 votes needed to break a filibuster. So in January, the Senate passed a budget resolution, a instruction to several Congressional committees to draft legislation (called a budget reconciliation bill) to repeal the ACA. Unlike other types of legislation, budget reconciliation cannot be filibustered, but it limits the scope of legislation to spending provisions only, prohibiting Senators from repealing any non-spending provisions of the ACA. So for example, the budget reconciliation bill will be able to repeal the individual mandate (which is enforced via taxation), but not coverage of pre-existing conditions.

The spending and non-spending provisions, however, rely on each other to function. For example, in the health care marketplaces (exchanges), insurers must offer insurance plans to anyone who pays a premium (guaranteed issue), but cannot charge [much] more for sicker enrollees ([modified] community rating). Such benefits are likely to attract sick people who could not previously obtain insurance, so in return, we promised insurers an individual mandate, so that healthy people would sign up for their plans as well. The individual mandate, therefore, is crucial to the functioning of guaranteed issue and community rating. Other spending provisions include federal funding for Medicaid expansions, the employer pay-or-play mandate, and subsidies in the health care exchanges.

The ACA itself was not passed by budget reconciliation. The House passed the Senate bill, which became the ACA. About 40 additional pages of spending amendments were passed through the budget reconciliation process, but not the bill itself.

The budget reconciliation bill is not yet drafted, so we don’t yet know what, if any, provisions Senate Republicans intend to repeal. Republicans are divided about how to “replace” or “repair” the ACA. I will discuss some of the options that they have proposed in a later post.

In addition to all of this activity in the Senate, the executive branch has been working on a strategy for repeal as well. One of Trump’s first actions in office was to sign an executive order regarding the ACA. This executive order did not – could not – repeal, replace, or change the ACA. Rather, it “ordered” the “executive” branch to use its powers to begin doing what was in its power to “minimize the economic burden” of the law.

But in general, the executive branch does not have power over legislation; instead, its powers are limited to interpreting the regulations, or standards and rules governing how laws will be enforced. For example, under the executive order, Health and Human Services (HHS), part of the executive branch, might be more lenient in granting states waivers to effectively “do the ACA” in their own way (section 1332 waivers). It might also be more lenient in granting states Medicaid waivers, e.g. to charge premiums or copayments, or to expand eligibility or services (section 1115 waivers). The executive branch could also expand hardship exemptions under the individual mandate, which would make it easier for more people to claim an exemption from the mandate. The executive branch cannot, however, repeal or replace any provisions of the ACA. It simply has some flexibility in how to enforce the law.

What are high-deductible plans?

A deductible is the amount that you must pay before your insurance covers care. Its purpose (and the purpose of any cost-sharing, such as coinsurance and copayments), is to encourage consumers to use care more judiciously, weighing the costs and benefits.

High-deductible plans (HDHPs), sometimes also called consumer-directed health plans, generally have a deductible that is at least $1,300 for an individual and $2,600 for a family, though it is not unusual for the deductible to be thousands of dollars higher. In return for not covering medical care up front, insurers offer a lower monthly premium.

Although HDHPs have been around for decades, a provision in a 2003 law (the Medicare Modernization Act) substantially increased enrollment by authorizing the creation of health savings accounts in order to help pay for health care expenses associated with high HDHPs. Prior to the existence of health savings accounts, there were other types of accounts that existed to help pay for the initial high-cost sharing associated with HDHPs, but they were owned by the employer, not the individual. Here, I explain the three main types of accounts that people use to pay for medical care expenses. Note that none of these accounts may be used to pay for insurance premiums:

Health savings account (HSA): An account owned by an individual, funded with pre-tax dollars by the individual (and her employer, if her employer has such an arrangement), to pay for out-of-pocket expenses associated with a HDHP. Because the account is individually-owned, funds roll over from year to year, and an individual may take the account with her from job to job and into and out of jobs.

Health reimbursement arrangement/account (HRA): An account owned by an employer, funded with pre-tax dollars by the employer to pay for some pre-specified medical expenses not covered by insurance. Funds may roll over from year to year, depending on employer rules.

Flexible spending arrangement/account (FSA): An account owned by the employer, jointly funded with pre-tax dollars by the employer and employee to pay for most qualified medical and dental expenses not covered by insurance. Generally, funds do not roll over from year to year – (some FSAs allow $500 to roll over, and others have a few month “grace period” in which they allow the funds to roll over into the next year).

Pros and cons of different accounts

Although all three types of accounts can be funded with pre-tax dollars, only the HSA is owned by the individual, which gives it several key features: 1) it can be carried from job to job or from job to unemployment or retirement; 2) its funds roll over from year to year; 3) because funds roll over from year to year, HSAs may earn interest, which accrue to you; and 4) you need not be employed to set up an HSA. Rather, you can set one up with a trustee, such as an insurer or bank.

You may enroll in multiple types of accounts, such as an HSA and a [post-deductible] FSA,* or an HSA and a [post-deductible] HRA,* but you will have to decide how you want to split your contributions into these accounts. Further, while you must enroll in an HDHP to enroll in an HSA, anyone offered an HRA or FSA can enroll.

*You may not simultaneously enroll in an HDHP and a general purpose FSA/HRA, which reimburses all types of medical expenses. Rather, to enroll in both types of accounts, the FSA/HRA must be a limited purpose FSA/limited purpose HRA, and the employer must specify that the [limited] purpose is to reimburse expenses after the deductible is met. This particular type of limited purpose account is called a post deductible FSA/post-deductible HRA. The benefit of a post-deductible account is that it reimburses qualified medical expenses after you have met the minimum federal deductible ($1,300 for an individual/$2,600 for a family in 2017) – even if this deductible is lower than your plan’s deductible.

How much can my employer and I contribute to each type of account?

Contribution limits for all accounts change each year.

In 2017, the contribution limit for an HSA is $3,400 for an individual HDHP and $6,750 for a family HDHP. Note that the minimum deductible for an individual HDHP is $1,300 (with a maximum out-of-pocket limit or stop-loss of $6,550) and that the minimum deductible for a family plan is $2,600 (with a stop-loss of $13,100). Those with HSAs who are older than 55 may contribute an additional $1,000 to their HSA, for either type of plan (called a catch-up contribution).

Employees may contribute up to $2,600 to an FSA. The employer may contribute up to $500 or instead, arrange to make payments that do not exceed the employee’s contributions.

There is no employer contribution limit for HRAs, and employees may not contribute.

Summary

HSAs were introduced as a way to increase uptake of high-deductible health plans. They offer several advantages over FSAs and HRAs, which are employer-owned, do not accrue interest, and may not roll over funds from year to year. Enrolling in both an employer-owned plan and an HSA may offer benefits to those in HDHPs, especially for those in very high HDHPs who do not think that they will meet their deductible, because employer-owned plans reimburse qualified medical expenses after the federal minimum deductible has been met.

 

 

 

How do I choose a private health insurance plan?

Even the smartest people I know get confused during health insurance open enrollment. Most people whose jobs offer insurance have only one or two options. Some, especially part-time and low-wage workers, are not offered insurance at all. The state health care exchanges provide individuals with an array of options – more in some states than others.

How do I choose a health insurance plan? I do not have easy answers for you, but I have some helpful information. In short, what health plan you want depends on your health care needs and how uncomfortable you are with risk. The more needs you have, and the more risk-averse you are, the more generous a plan you should purchase.

Here, I will explain different types of plans, from least to most generous. In general, the more generous a plan, the higher the premium. The lines between plans are not perfectly distinguishable; an HMO, for example, can have many features of a PPO, and vice versa:

HMO (health maintenance organization): Has a restrictive provider network and limited, if any, out-of-network benefits. Beneficiaries usually required to see a primary care “gatekeeper” before obtaining specialty care.

EPO (exclusive provider organization): has a restrictive provider network and limited, if any, out-of-network benefits, but does not usually require a primary care gatekeeper. Can self-refer to a specialist.

POS (point-of-service): combines HMO and PPO features. Beneficiaries assigned to a primary care gatekeeper, but may use out-of-network providers at a higher rate of cost-sharing (coinsurance/copayment).

PPO (preferred provider organization): has a wide network of “preferred” providers and allows beneficiaries to see out-of-network providers (non-preferred providers) at a higher rate of cost-sharing. No referrals required for specialty care.

Collectively, HMOs, EPOs, POSs, and PPOs, are called managed care plans because they attempt to limit costs and improve quality.

Indemnity: does not have a network of providers, but rather allows the beneficiary to visit whatever provider she wishes. Unlike the previous plans, however, an indemnity plan requires beneficiaries to pay the provider up front, and then obtain reimbursement from the insurer.

It is not clear where to put high-deductible health insurance plans on this list. These plans trade off high deductibles (the amount that you must pay before insurance covers medical services) for lower premiums. After you have paid the deductible, however, these plans usually operate like any other managed care plan. Whether a high-deductible plan is “worth it” depends on the extent of the premium reduction compared to the size of the deductible. Most high-deductible plans do not subject preventive care to the deductible, but rather cover this care without any additional cost-sharing.

How do I shop for care?

All plans, in both the exchanges and the employer-based market, must provide a Summary of Benefits and Coverage, which will allow you to compare major features of the plan.

If you need a certain medication, or if it is important to you to have a certain provider in your network, then you will need to look a little deeper. A drug formulary, available before you purchase a plan, will allow you to see what drugs are covered, for how much, and under what conditions. A provider network directory, also available before you purchase a plan, will allow you to see whether a provider is in-network. Note that a provider may be in-network for one type of plan, but not for another, even with the same insurer.

If other aspects of quality matter to you, then you can go to HEDIS for information on health care plan performance, including technical quality and care experience.

In the exchanges, healthcare.gov will allow you to compare the price and benefit structures of different health insurance plans. Plans in the exchanges must conform to one of four “precious metal” categories: bronze, silver, gold, and platinum, each increasingly generous. The precious metals correspond to actuarial values, the estimated proportion of covered costs on average among total enrollees. For example, the bronze plans are estimated to cover 60% of enrollee costs in a given year. But that could mean that one enrollee’s costs are covered at a rate of 90% (for example, because they use more in-network care), and another enrollee’s costs are covered at a rate of 30%. Silver plans have an actuarial value of 70%, gold 80%, and platinum 90%. Adults under 30 may purchase a very high deductible “catastrophic” plan instead of one of these plans.