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Key factors driving perception of poor value in individual health insurance market

October 26th, 2016

The law “requires you and each member of your family to have qualifying health care coverage (called minimum essential coverage), qualify for a coverage exemption, or make an individual shared responsibility payment when you file your federal income tax return,” the tax agency says on its website.

Some consumers who buy insurance on the exchanges still feel vulnerable. Deductibles are so high, they say, that the insurance seems useless. So some feel that whether they send hundreds of dollars to the I.R.S. or thousands to an insurance company, they are essentially paying something for nothing.

Obama administration officials say that perception is wrong. Even people with high deductibles have protection against catastrophic costs, they say, and many insurance plans cover common health care services before consumers meet their deductibles. In addition, even when consumers pay most or all of a hospital bill, they often get the benefit of discounts negotiated by their insurers

Source: Health Law Tax Penalty? I’ll Take It, Millions Say

Perception as political pundits often say is reality, particularly so when it comes to pocketbook issues. At the root of this perception is the more generous HMO plans that came about in the 1970s and 1980s that offered little or no out of pocket costs. That conditioned consumers to think of health insurance as pre-paid medical care rather than an insurance product. High deducible plans by comparison are predicated on a basic principle of insurance: to cover the risk of high and unexpected costs — and not to protect consumers from paying out of pocket to see a medical provider for routine care.

So not surprisingly, plans that come with high deductibles are seen as a poor value since consumers aren’t going to see any of their premium dollars returned to them unless they need high cost care such as hospitalization. Back in the pre-HMO days of the 1950s and 1960s, hospitalization and other “major medical” costs as health insurance policies were termed then was the main point of coverage and not primary care physician office visits. Hence, those policies came with high deductibles that were only triggered by high cost care.

A closely related perceptual problem with the return of the major medical model and high deductibles relates to high premiums for high deductible plans. That violates the established expectation of a tradeoff for accepting higher deductibles in exchange for lower premiums since less first dollar risk is being assumed by health plans. This is a huge issue for consumers in the individual market in age rating bands 50 and older but whose household incomes exceed 400 percent of federal poverty levels, thus disqualifying them for tax credit subsidies offered for coverage purchased through state health benefit exchanges. It has led to proposals such as allowing fifty somethings to buy into Medicare earlier than the minimum eligibility age of 65.

 


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

  1. Donald Kirkendall
    October 26th, 2016 at 12:59 | #1

    we are now paying 3 to 5 times more for worse coverag. Value?

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