HealthLawProf Blog

Editor: Katharine Van Tassel
Case Western Reserve University School of Law

Wednesday, May 21, 2014

Guest Blogger Professor John Jacobi: Ensuring Successful Reform Follow-Through, Part 2: Affordability

John jacobiHealth reform is an ongoing project.  In my last post, I noted that the success of ACA enrollment frees up some bandwidth to grapple with other outstanding implementation tasks – tasks that are vital to supporting the goals of the Affordable Care Act.  I tried to focus on issues with a short- or medium-term horizon, and which could be tackled largely by state or private-sector actors – that is, without change in federal law.  In this post, I’ll talk about affordability (the first “A” in the ACA).  First, the good; then, the problems; finally, some potential solutions.  


The good

Almost five million new Medicaid enrollees, of course, have affordable care.  There are indications   that Medicaid expansion will gradually come, in some form, in many red states, including Indiana, which is proposing what sounds like a mash-up of the Basic Health Plan and an 1115 waiver.  Beyond Medicaid, several affordability provisions support access in private insurance:   

  • Modified community rating, with 3:1 ratio limit.
  • Abolition of most annual/lifetime limits on coverage.
  • Annual out-of-pocket limit of $6,350/individual and $12,700/family (2014).
  • Actuarial value requirements for QHPs.
  • No cost-sharing for preventive care.

Low-income purchasers on the exchanges have additional protections:

  • Premium support, limiting the effective cost of coverage for people at or below 400% of FPL to 2% to 9.5% of income.
  • Further reductions in out-of-pocket caps by two-thirds for those at or below 200% of FPL, by one-half for those at or below 300% of FPL, and by one-third for those at or below 400% of FPL.
  • Reductions in cost sharing (point-of-care copayments and deductibles) for those below 250% of FPL, raising the actuarial value of their coverage to as high as 94%.

The bad

This protection is real and substantial – a tremendous improvement from the pre-ACA days when, as chronicled by Melissa Jacoby, Teresa Sullivan, Elizabeth Warren and others,  medical debt played a large part in personal bankruptcy filings, and, significantly, the majority of those filing with medical debt were insured. 

The limits on cost-sharing directly address many of these concerns, but problems remain for the lowest-income folks.  The actuarial value standards provide very useful touchstones for evaluating the richness of coverage, and further supports for low-income persons help.  For example, a person at 180% of the FPL ($21,006 per year) is eligible for much very rich coverage with a 87% actuarial value.  But this measure is an average, and a chronically ill person could be faced with higher – perhaps much higher - out of pocket costs than the average person. 

The backstop for that problem is the out-of-pocket cap.  The ACA shrinks the out of pocket limit for our guy making $21,006 per year by two-thirds, to about $2395. But is his care now affordable?  Maybe not.  Plans can mix and match their patient cost-sharing as between the copayments and deductibles that go into the patient share.  So, while on average an individual making $21,006 per year will pay only 13 cents per dollar of service provided, in any individual case his out-of-pocket costs might practically bar him from service.  Michelle Andrews explained this last year in Kaiser Health News:

Insurers have some flexibility in how they structure their plans to meet cost-sharing reductions. But in states that will require plans to standardize deductibles, copayments and coinsurance amounts, it's possible to see how out-of-pocket costs may vary. 

In California, for example, a standard silver plan will have a $2,000 deductible, a $6,400 maximum out-of-pocket limit and a $45 copayment for a primary care office visit. Someone whose income is between 150 and 200 of the poverty level, on the other hand, will have a silver plan with a $500 deductible, a $2,250 maximum out-of-pocket limit and $15 copays for primary care doctor visits. 

That $500 deductible could loom large when the rent bill is coming due.  And in many states, there is far less uniformity and transparency, allowing for even greater barriers. 

Potential solutions 

It is clear that the ACA solves a raft of affordability problems.  But, problems remain for those over-income for Medicaid and hard-pressed, notwithstanding subsidy, to meet the costs of care.   The ACA’s goal is to connect folks to care, and the “near poor” are still in a precarious position.  What can be done short of unlikely improvements in federal law? 

First, and most obviously, states and advocates should be examining the Basic Plan Program, which will finally be ready for roll-out  in 2015.  The Program, authorized by § 1331 of the ACA, is a public health insurance program intended to bridge the gap between Medicaid and subsidized private insurance for people with income between 138% and 200% of FPL.  It could serve two purposes:  It could reduce “churn” between Medicaid and private insurance as insureds’ income fluctuates in the low range, therefore minimizing disruption in ongoing access to providers.  It could also improve the affordability of coverage by allowing states to piggy-back on their Medicaid provider networks and premium structure, allowing Program participants rich coverage with little or no out-of-pocket cost.  There are downsides: the Program would reduce the exchange’s pool, perhaps increasing per-enrollee costs and threatening actuarial destabilization of the individual plan market; and Medicaid provider networks are already fragile in many states.  But faced with the risk of cost-based attrition and/or low service utilization by low-income exchange enrollees, states will want to consider this option. 

Second, states could create “wrap-around” support for low-income exchange enrollees without adopting the Basic Health Program.  As Heather Howard and Chad Shearer have described, states can use their own funds to fill the gap left for the very poorest individual exchange enrollees.  Wrap-around programs flow from the experience of states that had, prior to the adoption of the ACA, used Medicaid waivers to expand affordability supports beyond the reach of traditional Medicaid.  It is likely true, as Howard and Shearer note, that “[g]iven general state resource constraints, . . . the use of state-only dollars is unlikely in all but a few unique circumstances.”  The confluence of two factors might allow advocates to prevail on states to (re)consider such supplemental programs: most state economies are on the upswing, and we will soon have experience on the extent to which continuing affordability problems are causing very low-income exchange insureds to either drop coverage or forego medically necessary care.  Where data are available and states are willing to take a long-range view to the importance of maintaining as many as possible in meaningful coverage, the expense of a wrap-around program might represent state money well spent.

-Professor John Jacobi

[cross-posted at Health Reform Watch]

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