Two Different Animals: Reform Bills’ Cost-Sharing Subsidies and Out-of-Pocket Caps
Health care debt is the number one cause of bankruptcy in the United States, accounting for 62% of US bankruptcies in 2007, compared with just 8% in 1981. Most Americans experiencing medical bankruptcy are well educated, own homes, and had middle-class occupations before disaster struck—and three quarters had health insurance. Because out-of-pocket costs for the insured are driving most U.S. bankruptcies, true affordability standards must be closely linked to caps on out-of-pocket spending, and minimum actuarial value standards for health plans. Both chamber’s bills provide premium and cost-sharing subsidies, and cap out-of-pocket costs on a sliding scale, but the cost exposure for families varies considerably between the bills and across income groups.
One of the factors behind out-of-pocket cost exposure is of course the extent to which the insurance plan covers the costs of care for the enrollee. In health reform parlance, a measure of the average percentage of health care costs a particular plan would cover is called the “actuarial value” (detailed explanation here). Both the Senate and House tie premium subsidies (a.k.a. “credits”) to Exchange plans that provide an average actuarial value of 70%; that is, would pay 70% of the costs of medical expenses for a typical population. The House and Senate bills then add to the mix cost-sharing subsidies, which are applied to the 70% actuarial value plans to increase the actuarial value of the plan, and thus lower the out-of-pocket exposure of these low-income families. The House bill offers these subsidies up to 400% FPL, but the Senate ends its cost-sharing subsidies at 200% FPL (good illustration in Table 2 here).
This is where comparing the two bills on affordability can get confusing. The Senate has a lower out-of-pocket CAP above 250% FPL than the House, but also offers a lower actuarial value plan at those income levels because of the lack of cost-sharing subsidy, and therefore exposes all enrollees to greater out-of-pocket spending.
As an example, an individual who earns just over 250% of the FPL ($27,100/year for an individual), will have her premiums capped at about 8% of her income under both the House and Senate bill. What she has to pay out-of-pocket to get health care varies considerably. Under the House bill, she’ll have a policy with an 85% actuarial value. So, in a simplified scenario, she’ll pay $15 out-of-pocket (copay and/or deductible) for a $100 doctor’s visit. She’ll keep paying $15 out-of-pocket for every $100 in health care she receives, until she’s spent $4,000 of her own money to—the out-of-pocket cap for an individual just over 250% of the FPL in the House bill. After people hit their annual out-of-pocket cap, insurance pays 100% of medical costs for the rest of the year.
Under the Senate bill, she’ll have a policy with a less generous 70% actuarial value. So she’ll have to pay $30 of every $100 medical bill, until she hits her $3,000 cap (limit in the Senate bill for an individual just over 250% of the FPL). If she needs significant medical care in the year, she’ll pay less overall because of the Senate’s lower out-of-pocket cap at this income level. But, she’ll have to pay a higher deductible and higher copays at each appointment. And for people who don’t hit their annual out-of-pocket cap (and most don’t), the Senate bill leaves them paying more out-of-pocket than the House bill at all income levels under 400% of the FPL.
To sum up:
• A higher actuarial value for low- and moderate-income families means all enrollees getting that cost-sharing subsidy—in good and poor health—will experience lower out-of-pocket costs.
• The out-of-pocket cap for that income group provides “stop-loss” protection strictly for families with high medical bills (i.e., those who hit that cap).
Ideally, we would like to see low-and moderate income families have both kinds of protection. And for those of us who will not need or qualify for subsidies, new out-of-pocket caps combined with the elimination of annual and lifetime caps can provide a level of protection from financial and medical catastrophe few Americans enjoy today.
