Following up a February study, which showed that people needing drugs on the highest formulary tier will pay much higher out-of-pocket costs than other ObamaCare enrollees, consultants at Avalere have released another study, which shows that the low-income ObamaCare enrollees will suffer this effect even more than middle-class ones.
A formulary is a list of drugs that a health plan covers. It can be divided into up to four tiers. Drugs on the lowest tier (usually generic medicines) cost the least out of pocket, while those on the highest tier cost the most. However, those on the highest tier are the most expensive, and often indicated for those suffering the worst diseases.
Under ObamaCare, enrollees with household incomes between 100 percent and 400 percent of the Federal Poverty Level (FPL) pay lower premiums for their policies (because of tax credits that go to their insurers). However, those in households who earn up to 250 percent of the FPL also get cost-sharing reductions towards their deductibles, co-pays, and co-insurance. A Silver Plan is supposed to cover 70 percent of the healthcare costs of its beneficiaries. That is, if the expected costs are $10,000, the insurer is expected to pay $7,000 and the beneficiary $3,000. The actuarial assumptions built into the policies are complex and accepted by regulators before the policies can be offered on the exchanges.
For those eligible for cost-sharing reductions, the government subsidizes the insurer to pay 73 percent, 87 percent, or 94 percent of the expected healthcare costs. So, if expected costs are $10,000, the lowest-earning enrollees would only pay $600 out of pocket, with the plan paying $9,400 (of which $2,400 is taxpayer-funded). Insurers have lots of choice in how they apply that expected $2,400. Avalere found that they use it to subsidize the healthier low-income enrollees instead of the sickest:
The bar chart shows that the plans apply more of the subsidy to the deductible, somewhat less likely to apply it to specialist charges, and much less likely to apply it to the most expensive tier 4 drugs on the formulary. What this means is that generally healthy patients who go to see their primary-care physician occasionally, but need no specialist care or specialty prescriptions, are most likely to benefit from the cost-sharing reductions. Those who need specialist care and, especially, tier 4 drugs will be less likely to benefit.
This blog has written frequently about how ObamaCare motivates health plans to seek out healthy enrollees and shun sick ones. Avalere’s latest report demonstrates how this is magnified for low-income enrollees. It would be in the interests of health insurers, pharmaceutical companies, and patients to change the incentives in ObamaCare to fix this problem.