A version of this Health Alert appeared at Forbes.
Avalere Health has given a budget score to the so-called “copper plan,” a health insurance policy proposed by health insurers that would cover 50 percent of the actuarial value (AV) of the policy. Our colleague Linda Gorman has defined AV as the average amount a plan with a given set of benefits is likely to pay given a standard population. Current Obamacare plans (bronze, silver, gold, and platinum) cover higher actuarial values.
Actually estimating actuarial value in Obamacare is complicated. Nevertheless, to simplify, we can say that if the standard population would cost $8,000 per beneficiary, a copper plan would expect to pay $4,800 of the costs.
One problem with Obamacare’s regulation of these plans is that the AV is forward looking. Different actuaries come to different conclusions. For example, an Obamacare silver plan has an actuarial value of 70 percent. With an out-of-pocket maximum of $6,350, what co-insurance and deductible will result in the standard beneficiary paying 30 percent of the costs? When this question was posed to three highly respected consulting actuaries, they came up with three different answers. Each proposed a 20 percent co-insurance. However, their deductibles differed substantially: $4,200, $2,050 and $1,850.
Another problem, discussed frequently at our blog, is that Obamacare incentivizes insurers to design plans that will attract the healthy and dissuade the sick from enrolling. Because a small portion of any population accounts for most of the health costs, an insurer can design a plan that will have extremely high cost-sharing for sick people. The easiest way is an expensive tier of specialty drugs. Because most of the people will not spend anywhere near their share of the AV, the plan overall will hit its target.
Unfortunately for insurers, their plans are not achieving their goals: Sicker people have piled into Obamacare. So, it is not surprising that insurers want to offer a copper plan with even lower AV, in order to attract more healthy people with lower premiums.
Within the context of Obamacare, it should definitely be allowed. One advantage is that a copper plan would reduce government spending on Obamacare. According to Avalere, it would reduce government spending by $5.8 billion through 2014, and reduce receipts by $5.5 billion. This would result in a small reduction in the deficit.
To be sure, this is a drop in the ocean of Obamacare spending — but every bit helps. Further, Obamacare has annual open enrolment, so healthy people who chose the copper plan can upgrade next year if their health status changes. (Open enrollment is not our preferred way to manage this risk. We prefer health-status insurance. Nevertheless, open enrollment does afford some choice.)
Insurers should be free to offer copper, or lead, or brass or whatever policy they want. However, as long as the federal government is subsidizing insurers billions of dollars in these exchanges, it should offer some of the money for beneficiaries’ direct use, via deposits in Health Savings Accounts, Health Reimbursement Arrangements or Flexible Spending Arrangements, instead of handing it over to insurers.
States have improved Medicaid with innovations such as Health Opportunity Accounts (HOAs), which allow Medicaid dependents to control some Medicaid money directly. Disabled Medicaid beneficiaries have benefited tremendously from “cash and counseling,” which gives them money to hire home-health aides directly, instead of passively accepting whomever the county bureaucracy sends over.
Obamacare beneficiaries should have the same power as these Medicaid beneficiaries. By all means, let’s have a copper plan, but let’s give some Obamacare cash to people, not just insurers.