The case of the dis­ap­pear­ing sub­si­dies

Lower-than-ex­pected pre­mi­ums push down ACA sub­si­dies in some states

Modern Healthcare - - THE WEEK IN HEALTHCARE - Jonathan Block

The emer­gence of un­ex­pect­edly low­cost health plans in some state in­sur­ance ex­changes means that fed­eral sub­si­dies to ex­change sub­scribers earn­ing less than 400% of the poverty level will be lower than ex­pected in some states. For some earn­ing less than that level, the sub­si­dies could dis­ap­pear al­to­gether. That could limit the abil­ity of ex­change sub­scribers to choose plans with lower de­ductibles and cost-shar­ing or with broader provider net­works. And it could re­duce the num­ber of peo­ple—par­tic­u­larly younger and health­ier peo­ple with mod­est in­comes—who buy cov­er­age.

Un­der the Pa­tient Pro­tec­tion and Af­ford­able Care Act, in­di­vid­u­als whose an­nual in­come is be­tween 100% and 400% of the fed­eral poverty level—$11,490 to $45,960—are el­i­gi­ble for slid­ing-scale sub­si­dies. The amount of that sub­sidy is based on both an in­di­vid­ual’s an­nual in­come and the state’s bench­mark plan in the lo­cal mar­ket, which is the one of­fer­ing the sec­ond-cheap­est pre­mi­ums among the sil­ver-tier plans.

The sub­sidy is cal­cu­lated so that in­di­vid­u­als at 100% of the poverty level (in states that don’t ex­pand Med­i­caid el­i­gi­bil­ity to 138% of poverty) pay no more than 2% of their in­come for the pre­mium, while peo­ple at 400% of poverty pay no more than 9.5%.

An ex­am­i­na­tion of 2014 pre­mi­ums in states that have ap­proved their rates shows that the bench­mark pre­mium in a num­ber of states is so low that peo­ple at mod­est in­come lev­els will re­ceive lit­tle or no sub­sidy. That could pose prob­lems par­tic­u­larly for peo­ple who don’t want to or are un­able to buy the cheap­est plan avail­able.

In Port­land, Ore., for ex­am­ple, the sec­ond-cheap­est sil­ver plan is from Moda Health Plan. Its pre­mi­ums in some rat­ing cat­e­gories are nearly 25% less than rates of­fered by com­peti­tors. A 40-year-old, non­smoker earn­ing about $23,000 buy­ing that plan would re­ceive a sub­sidy of $100 a month to cover the monthly pre­mium of $221, leav­ing that per- son to con­trib­ute 6.3% of in­come to­ward the pre­mium. A 40-year-old earn­ing about $34,000 would re­ceive no sub­sidy. Nei­ther would a 30-year-old earn­ing around $27,000.

That $100-a-month sub­sidy would help a lot less if that 40-year-old Port­lander earn­ing about $23,000 wanted to buy a sil­ver plan from Re­gence Blue Cross and Blue Shield of Ore­gon, which costs $270 a month; Tril­lium Com­mu­nity Health Plan’s sil­ver prod­uct, which costs $329; or Pa­cific Source’s gold plan, which costs $316.

The phase-out of the sub­sidy at about $27,000 is lower than ex­pected un­der the ACA, which was in­tended to of­fer sub­si­dies for in­di­vid­u­als earn­ing as much as $46,000 a year, or 400% of the poverty level. Some ob­servers ques­tion whether the sub­si­dies will be high enough to at­tract younger, health­ier peo­ple for whom the monthly pre­mium will eat up a good chunk of their in­come and who don’t nec­es­sar­ily think they need health in­sur­ance.

In New York City, the sec­ond-cheap­est sil­ver plan on that state’s ex­change is Fidelis Care New York at $390 a month for peo­ple of all ages who are non­smok­ers. Peo­ple in that rat­ing cat­e­gory who earn about $23,000 a year—200% of the poverty level—would re­ceive a sub­sidy of $269 to pay for that, leav­ing them to pay $121. In con­trast, peo­ple in that rat­ing cat­e­gory earn­ing about $34,000 a year—300% of the poverty level—would re­ceive a sub­sidy of $118, leav­ing them to pay $272 a month for the pre­mium.

That $269 a month sub­sidy for those earn­ing about $23,000 would not go far in help­ing those same New York­ers buy Unit­edHealth­care’s sil­ver plan, which costs $636 a month, or Unit­edHealth­care’s gold plan, which costs $749.

Cal­i­for­ni­ans also will en­joy lower than ex­pected pre­mium rates—and thus low­erthan-ex­pected sub­si­dies. The state has 12 in­sur­ers of­fer­ing in­di­vid­ual plans in the state, though not nec­es­sar­ily in ev­ery ge­o­graphic area. In some ar­eas of the state, rates are so low that the fed­eral sub­sidy will cover an in­di­vid­ual’s en­tire monthly pre­mium for the low­cost plan, said Anne Gon­za­les, a spokes­woman for Cov­ered Cal­i­for­nia, that state’s ex­change.

For ex­am­ple, the bench­mark sil­ver plan in San Fran­cisco is an HMO from Chi­nese Com­mu­nity Health Plan. A 25-year-old non­smoker would have a pre­mium of $255 for that plan. If that 25-year-old earns about $23,000 a year, that in­di­vid­ual would re­ceive a sub­sidy of $133 a month, and pay $122 out of pocket. But that $133 sub­sidy would leave a big­ger out-of-pocket con­tri­bu­tion if that in­di­vid­ual chose a sil­ver plan from Blue Shield of Cal­i­for­nia or Kaiser Per­ma­nente, with monthly pre­mi­ums of $294 and $301, re­spec­tively.

Some ex­perts say the lower-than-ex­pected pre­mi­ums are good for con­sumers, even if they drive down the sub­si­dies. “I don’t see how this is any­thing but good news,” said Jonathan Gruber, a Mas­sachusetts In­sti­tute of Tech­nol­ogy health econ­o­mist who con­sulted in the draft­ing of the ACA. “If folks can get in­sur­ance for even lower rates with­out sub­si­dies, then it is even more af­ford­able.”

But other ex­perts say the low pre­mi­ums and sub­si­dies could cre­ate prob­lems. To make the sub­sidy go fur­ther, many con­sumers may choose a sil­ver or bronze plan with high cost­shar­ing or with a nar­row net­work of providers. Those fea­tures may not fit their fi­nan­cial sit­u­a­tion or their health­care needs. But that may be all they can af­ford.

“With so many car­ri­ers of­fer­ing Med­i­caid-like or nar­row net­work plans, con­sumers will find the only plan the sub­sidy will cover will

be a net­work that does not look like the Blue Cross or Aetna broad net­work plan they thought they were go­ing to get,” said Robert Laszewski, a for­mer in­sur­ance ex­ec­u­tive and pres­i­dent of Health Pol­icy and Strat­egy As­so­ciates, a Wash­ing­ton-based con­sult­ing firm. “And it will have a big de­ductible to boot.”

Kip Piper, a health­care con­sul­tant with Sell­ers Dorsey, ex­pressed con­cern about peo­ple choos­ing cheaper bronze plans based on the shrunken amount of the sub­sidy. “If an in­di­vid­ual is look­ing at the (ex­change) screen, what looks like the cheap­est op­tion on their com­puter may be a mis­take,” he said. “They may think the bronze plan is cheaper, when the sil­ver plan is cheaper when you fac­tor in the out-of-pocket ex­penses and the sub­sidy.”

Tim Jost, a law pro­fes­sor at Wash­ing­ton & Lee Univer­sity who closely tracks the ACA, said low-cost plans like Moda in Ore­gon may prove so pop­u­lar at the out­set of ex­change en­roll­ment that they fill up early and stop ac­cept­ing new cus­tomers. Then peo­ple will have to take the small sub­sidy based on the low-cost plan and buy a more ex­pen­sive plan. Still, he sees lower-cost plans ul­ti­mately ben­e­fit­ing con­sumers be­cause they will force other in­sur­ers to lower their pre­mi­ums.

There also are con­cerns that the low rates of­fered by some in­sur­ers—which have driven down the sub­si­dies—may be un­sus­tain­able, and that con­sumers will have to change plans in sub­se­quent years and face dis­rup­tion in their health­care be­cause they have to change providers.

Caro­line Pear­son, vice pres­i­dent of the health re­form prac­tice at Wash­ing­ton-based con­sul­tancy Avalere Health, said some in­sur­ers may have de­lib­er­ately of­fered rates lower than their com­peti­tors know­ing that it is im­por­tant to grab mar­ket share when the ex­changes launch in 2014.

“Plans are at­tempt­ing to gain vol­ume,” she said. “They still need to be above wa­ter but some might be will­ing to take a loss (at the start) since peo­ple are sticky.” She was re­fer­ring to the phe­nom­e­non that con­sumers tend to stay with a plan once they en­roll.

What­ever the im­pact on con­sumers of the lower-than-ex­pected sub­si­dies, some ob­servers say it’s a pos­i­tive de­vel­op­ment for the fed­eral bud­get. Sarah Lueck, a se­nior pol­icy an­a­lyst at the Cen­ter on Bud­get and Pol­icy Pri­or­i­ties in Wash­ing­ton, said the lower pre­mi­ums show that the ex­changes are work­ing in fos­ter­ing com­pe­ti­tion.

“It’s good from a fed­eral sub­si­dies stand­point,” she said.

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