Insurance Overstates Actual Value

Do marketplace plans adequately communicate their ability to cover consumers? The Affordable Care Act (ACA) allowed plans to have coverage across multiple tiers: bronze plans must have an actuarial value of 60%, silver 70%, gold 80%, and platinum 90%. Considered to reflect coverage generosity, actuarial value is defined as the ratio of a plan’s covered spending that is paid for by the plan divided by the plan’s total covered spending for a standardized population. To put it otherwise, actuarial value is the inverse of how much the consumer should be expected to pay for their own health care. With actuarial value of 70%, the consumer would be responsible for 30% in the form of copayments, deductibles, and coinsurance after paying the premiums for a silver plan.

The study analyzed the actual proportion of expenditures paid by a plan for any given enrollee. For each person in the sample, they determined how much would have been paid out of pocket prior to the launch of the ACA Marketplaces and how much would have been covered by each of 51 Marketplace plans offered in Cook County, Illinois. Advertised actuarial value did not consistently reflect real life experience. Plans covered the fraction of the costs corresponding to the actuarial value only for those enrollees with substantial annual health care spending.

The implication is that the ability of the consumer to choose a plan based on their needs may be imperfect. Someone who is relatively healthy and purchases a Gold plan may not realize how much more she will need to spend out-of-pocket than predicted before they are able to realize the savings. The average American has difficulty navigating the health insurance system and this oversimplification of cost effectiveness with actuarial values likely leads to a continued disconnect.

The authors also recognized another area for confusion. An enrollee who chooses a Gold plan, should expect to pay 20% of her expenses. However her utilization may actually decrease because she knows she now must pay the 20% out-of-pocket. Due to this behavior, insurance plans overstate potential risk protection.

How do we assure that consumers are making optimal decisions? Health insurance companies benefit from consumer illiteracy on these matters. Confusing terminology must be simplified. Easy-to-use methods to predict costs must be available. Watchdog organizations can provide these services when for-profit Marketplace insurers lack the incentive.

Abstract

The Affordable Care Act (ACA) has increased the number of Americans with health insurance. Yet many policy makers and consumers have questioned the value of Marketplace plan coverage because of the generally high levels of cost sharing. We simulated out-of-pocket spending for bronze, silver, or gold Marketplace plans (those having actuarial values of 60 percent, 70 percent, and 80 percent, respectively). We found that for the vast majority of consumers, the proportion of covered spending paid by the plans is likely to be far less than their actuarial values, the metric commonly used to convey plan generosity. Indeed, only when annual health care spending exceeds $16,500 for bronze plans, $19,500 for silver plans, and $21,500 for gold plans do plans in these metal tiers cover the proportion of costs matching their actuarial values. While Marketplace plans substantially reduce consumers’ exposure to financial risk relative to being uninsured, the use of actuarial values to communicate plan generosity is likely to be misleading to consumers.

PMID: 29200356

Polyakova, M, et al. Health Affairs. 2017; 36 (12): 2078-2084.