ACA Metal Plans: Gaps, Reforms, and Catastrophic Coverage

The Current State of U.S. Health Care

Health care in the United States is in a state of legislative flux. The Affordable Care Act was passed to reduce the number of uninsured people in the country and to begin containing the runaway growth in health care costs through a number of measures that essentially brought more of health care under stronger government influence. The ACA was mostly successful, both in terms of cost containment (Weiner, 2017) and in bringing down the number of uninsured Americans (Mangan, 2017).

However, there were significant challenges with the ACA. The first was that the individual mandate was unpopular in some circles, as people were faced with a choice of paying a penalty if they did not purchase health insurance — a provision widely viewed as a forced expenditure. The individual mandate faced legal challenges, and the ethics of this provision were debated extensively (Gostin, 2010). Another issue was the government-set structure of the plans, which created difficulties for insurers. In some markets there were few, if any, options for health care coverage at various points in time, as insurers simply did not view those markets as profitable within the scope of the plans (Mangan, 2017). A third issue can be identified in the ACA's structure, which gives states considerable power over the implementation of the Act, leading to different outcomes in different states. This caused many Republican-led states to decline certain provisions, such as refusing federal funds for Medicaid expansion (Healthcare.gov, 2017).

The federal government has also appeared determined to undermine the ACA, if not repeal it outright. This creates uncertainty for insurers, patients, and health care providers alike — a condition that benefits virtually no one. Any health care reform would ideally be aimed at identifying issues with the current system and addressing them with targeted action, rather than ill-conceived, politically motivated repeal campaigns with no plausible substitute for the ACA.

How ACA Exchange Plans Are Structured

The section of the Act under review covers the definition of ACA-compliant plans. Within the ACA, there are health insurance plan exchanges. This structure creates a marketplace where insurance providers offer plans according to standardized templates, competing on both price and service. The exchanges are designed to foster greater competition in the health care insurance market. Because the plans are standardized, they are easier for insurance companies to administer and easier for consumers to understand.

Information asymmetry between consumers who need health care coverage, the insurance companies, and the health care providers themselves has been identified as one of the critical issues driving health care costs higher. Consumers are largely price-takers, which leaves them vulnerable to exploitation. The creation of the exchanges seeks to reduce some of that information asymmetry by requiring insurance companies to compete on the basis of standardized plans.

The ACA establishes four categories of health care plans — bronze, silver, gold, and platinum — differentiated by the percentage of costs the insurer covers. With a platinum plan, the enrollee pays 10% of costs; with a bronze plan, the enrollee pays 60%. The idea is that people can choose a plan structure based on their individual health care needs and financial situation. Each local market operates its own exchange, set up at the state level, and the degree of competition within each market will vary. Areas with higher populations and a greater density of health care providers are likely to see more competitive exchanges. There are also provisions within the ACA to help offset the cost of these plans for individuals who qualify on the basis of income.

Coverage Gaps and Financial Risk in the Metal Plans

While the plan categories are intended to offer a baseline level of coverage and give people options about what they pay, there are notable problems with this structure. First, the individual mandate means that people must purchase at least a bronze plan. Relatively healthy individuals are thus required to buy at minimum a bronze plan, which can cost hundreds of dollars per month. Prior to the ACA, some markets offered plans with lower levels of coverage than the ACA now mandates. Those non-compliant plans were effectively eliminated, replaced by more expensive ACA-compliant plans — increasing the cost of health care coverage for some individuals while simultaneously requiring healthy people who might otherwise have remained uninsured to enroll.

The other significant issue with the structure of these plans is that none of them offer full coverage. Even the best plan — platinum — carries a 10% co-pay. This means that someone enrolled in a platinum plan can still be financially ruined by exorbitant health care expenses. While most high-cost situations arise from end-of-life care and chronic illness, accidents happen and serious illness can strike otherwise healthy people. Those individuals could easily face financial ruin even with the best available plan.

A healthy person enrolled in a bronze plan faces an even more precarious situation should they actually require significant medical care. A 60% patient share is, for virtually any serious health care episode, an amount that will devastate someone without substantial financial resources. The structure of the metal plans may be adequate for creating exchanges and increasing overall coverage rates, but it creates unresolved pain points for enrollees who face catastrophic health events.

Conclusion

The current metal plans in the ACA may solve some big-picture issues, but they were designed without market feedback. That feedback now exists, and it presents an opportunity to improve the metal plans. The most significant problem is that people are required to purchase a plan, yet none of the available plans adequately protect Americans from catastrophic financial loss resulting from serious accident or sudden illness. This leaves enrollees exposed to potential financial ruin from entirely unforeseen circumstances.

Either restructuring the platinum plan to provide 100% coverage, or extending the catastrophic plan to any American who wishes to eliminate this downside risk, would help to relieve the burden on risk-averse individuals who simply want to avoid bankruptcy in the event of a serious accident or illness. Because this is a pain point unaddressed by the current structure of the ACA, it represents a meaningful opportunity to strengthen the Act through targeted health care reform.

References

Gostin, L. (2010). The national individual health insurance mandate: Ethics and Constitution. Georgetown Law Faculty Publications and Other Works. Retrieved December 10, 2017, from http://scholarship.law.georgetown.edu/facpub/430/

Healthcare.gov. (2017). Medicaid expansion and what it means for you. HealthCare.gov. Retrieved December 10, 2017, from https://www.healthcare.gov/medicaid-chip/medicaid-expansion-and-you/

Mangan, D. (2017). Obamacare kept reducing number of Americans without health insurance during Trump's first few months in office. CNBC. Retrieved December 10, 2017, from https://www.cnbc.com/2017/08/29/obamacare-kept-reducing-number-of-americans-without-health-insurance.html

Mangan, D. (2017). People in half of Virginia's counties on track to have zero Obamacare insurers next year. CNBC. Retrieved December 10, 2017, from https://www.cnbc.com/2017/09/07/half-of-virginias-counties-on-track-to-have-no-obamacare-plans.html

Weiner, J. (2017). Effects of the ACA on health care cost containment. Leonard Davis Institute of Health Economics. Retrieved December 10, 2017, from https://ldi.upenn.edu/brief/effects-aca-health-care-cost-containment