America’s Health Insurance Plans (AHIP) has proposed the creation of a new Patient Protection and Affordable Care Act-compliant catastrophic individual health plan. (Link here) According to AHIP:
The new catastrophic plan would offer an AV (actuarial value) just below the current minimum requirement (covering an average of 60 percent of medical utilization costs) allowing for lower premiums, but would still include coverage of the law’s mandated essential health benefits, have no annual or lifetime benefit limits, and cover all preventive health services with zero cost-sharing for consumers. This would allow individuals and families eligible for premium subsidies to use that financial assistance to purchase the new plan, an option currently unavailable to consumers purchasing the ACA catastrophic plan.
Since bronze plans and catastrophic plans are quite close in actuarial value, have the actuaries found any potential for meaningfully lower premiums for these proposed catastrophic plans? In other words, is the medical services utilization of a population covered at 57 percent AV, for example, significantly lower than one covered at 60 percent such that it can produce meaningfully lower premiums? Especially given that the Affordable Care Act limits annual maximum out of pocket costs for in-network providers?
Not likely. But the apparent goal isn’t so much to reduce premium rates but rather to make catastrophic plans eligible to become qualified health plans (QHPs) sold in the state health benefit exchange marketplace and thereby eligible for advance premium tax credit subsidies. That has raised criticisms from some quarters that proposed catastrophic plans would not be beneficial to lower income individuals and families since the plans’ high cost sharing (deductibles, co-insurance and co-pays) would discourage their getting necessary care. But lower income people and especially those who utilize a lot of catastrophic (i.e. hospital inpatient) care aren’t likely to choose catastrophic plans and instead opt for plans with at least 70 percent AV (this level includes additional cost sharing subsidies for lower income earners).
If the goal however is to bring more relatively healthy people into state risk pools who are comfortable covering their own out of pocket costs for non-catastrophic care and using tax deductible health savings accounts to cover them, a more appealing catastrophic plan would be one that provides lower cost sharing for hospitalizations and other unexpected high cost medical events. Even with annual out of pocket cost limits of $6,350 for an individual plan and $12,700 for a family plan, a hospitalization can result in large medical bills, particularly for out of network hospitals used in an emergency situation that can double those limits.
Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email