Take a look at the chart above. It was prepared by Covered California, the state-run California exchange and comes to us courtesy of Robert Laszewski. It reflects a pattern I’ve noticed that is common in the small employer market and that I wrote about in Priceless.
Traditional insurance theory holds that patients should pay out of pocket for expenses that are small and over which they have a great deal of discretion. Insurance, on the other hand, should pay for expenses that are large and over which patients don’t have a lot of discretion. The insurance above turns that theory on its head.
Patients who choose this “Silver Plan” will make only nominal copayments when they see a doctor, get a blood test or an X-ray exam ― activities that are usually discretionary and the source of a great deal of unnecessary care. But if they go into a hospital (where patients have almost no control over what is done or what anything costs) they will be charged from 10% to 20% of the total bill. For an individual earning only a few thousand dollars above the poverty level, a hospital visit will cost $2,500. For a lower-middle income patient, the charge will be $6,350. A moderate income family can end up paying hospital expenses of $12, 500 ― every year!
Clearly this plan will be attractive to people who don’t plan to enter a hospital (the healthy) and unattractive to people for whom a hospital stay is likely (the sick). It is consistent with our long-held prediction: In an insurance exchange (or in any managed competition setting), insurers will try to attract the healthy and avoid the sick. And after enrollment, they will subsidize the healthy at the expense of the sick.