The Hill reports that a gaggle of Democratic Senators will be introducing a modification to PPACA shortly.
The first bill from the group of Democrats would add a new, cheaper option, a copper plan, to ObamaCare’s existing menu of platinum, gold, silver and bronze plans. The bill also seeks to spur competition in the marketplaces by restoring funding to nonprofit healthcare co-ops.
The copper plan has been floating in the proposal space for a while. It has been pushed by Sen. Mark Begich of Alaska for the past six months. On a technical level, it is a feasible idea. On a policy and political level, I’m not so sure. Let’s look at the details first and then do some analysis:
v Adds a new copper level of coverage to the metallic tiers of qualified health plans for 2015 plan years;
v The copper plans will feature a 50 percent actuarial value, ensuring that, on average, at least half of medical costs of covered services will be paid by the insurer;
v Like other metallic tiers, individuals and families purchasing copper plans within the Marketplace can qualify for premium and cost-sharing subsidies;
v The copper plans will also feature the ten services included as essential health benefits;
v For copper plans, increases the annual maximum out-of-pocket limit to make feasible copper plan designs in high-cost marketplaces. The Secretary of the Department of Health and Human Services must ensure the limits are reasonable for every marketplace;
v Permits Multi-State Plans to include the new copper plans; and
v Copper plans meet minimum essential coverage.
The bill has not actually been fleshed out, scored and simulated, so things will change. However these bullet points could work without doing any damage to the rest of the law. Details below the fold.
Right now, minimal essential coverage for people over the age of 29 and those not facing a hardship is a Bronze plan. That plan covers 60% of the average expected acturial cost. All Bronze, Silver, Gold and Platinum policyholders from a single company in a single state make up a unified risk pool. The metallic band plans are subsidized by tax credits. Minimal essential coverage for people 29 and younger is catastrophic coverage which covers less than 50% of the expected acturial cost. Catastrophic coverage has its own seperate risk pool and is non-subsidized.
The copper plan would be a redefinition of essential minimum coverage for most people from 60% acturial value to 50%. This is a 16% decrease in expected coverage value, and it is getting insurance to the point where it is truly hit by the bus coverage. The 16% decrease in coverage will probably lead to an 18% to 20% decrease in premium pricing if the pricing differentials between the same insurer/same plan design Bronze-Silver-Gold-Platinum hold up. To get that decrease in acturial value, the maximum out of pocket levels will increase from the current $6,350 to between $8,000 and $10,000 (I’m not a pricing expert). It is a trade-off between lower guaranteed monthly payments and the possibility of much higher oh-shit payments. That is a legitimate trade-off for insurance.
The key thing is that is seems like the Copper plans would be in the larger Metallic risk pool. There would be some selection of these plans by healthier people, but their premiums and low medical utilization will still cross-subsidize sicker individuals who bought up the metal scale. Copper plans would offer the full array of Essential Health Benefits (including contraception), and premium subsidies. Since subsidies would still be based on the second cheapest Silver in a county, it is highly likely that quite a few copper plans would have no purchaser premiums to be paid. That is attractive but again, the coverage itself is skimpy.
So who would be interested in Copper? I’m betting that the market for Copper is almost exclusively the subset of people who are buying anything below Silver already. HHS reports that approximately 19% of all purchases on the Exchanges from October 1st to March 2 were Silver or Catastrophic coverage. This is the total market. I think the market can be restricted even more to the individuals who are buying Bronze or Catastrophic policies without significant subsidy. That is roughly 5.5% to 7% (depending on how you define “without significant subsidy” — 5.5% if subsidy is $0) of the total Exchange market right now which would be particularly interested in Copper plans. That is a large enough market to justify product creation. These individuals have already indicated that they are willing to pay full price for low acturial value coverage, so the option of getting a lower price for a bit less coverage could be attractive. I don’t think too many people who are getting subsidized Silver plans, especially those with cost sharing assistance will shift to cheaper but skimpy plans as Bronze has not been particularly attractive on the marketplace (as expected), so Copper would need an amazing price to make up with the demonstrated disinterest in low acturial value coverage.
There are two purposes behind this bill. The first is political. This is an attempt by Democratic Senators who represent conservative leaning states to create some distance from the President and Obamacare while also genuflecting in the direction of “improve” and “mend not end” the law. I think this will work as a genuine “mend not end” goal that could potentially demonstrate some value as a “mend” while not pissing off base Democratic voters. Will it be enough to save a seat — I have no idea. Is it a good attempt? Yes.
The second is a policy implication. The policy justification is that in some areas, the cost of plans, even with subsidies are too high. This bill approaches the problem that the benefit design is too rich, and that the way to bring down prices is to offer lower benefits. It will do that. I don’t think it will be attractive to too many people, but it would offer an even lower price alternative. This is a conservative (not Republican, not reactionary) approach to the problem of high health care costs — consumers don’t have enough skin in the game, so increasing the exposure will lead to better choices.
Going this route is a political decision.
There are three other routes available that could improve the cost of coverage problem that Begich et al have identified. The first is to make subsidies richer. That could be done by changing the formula for how subsidies decline as families make more money, or changing the base minimum amount that someone over 100% FPL will pay, or increasing the cap on family income eligible for subsidy. There are seventy six ways to increase subsidies, picking two or three is not hard. It would cost money, but that could be paid for by either baselining against the CBO’s 2011 projections or instituting a public option or Veteran’s Adminsitration offering a Medicare Part D formulary or raising taxes or deficit spending. The second alternative that is not being addressed would be to increase competition in the insurance market of high cost regions. The easiest solution is again, a public option, or a Medicare buy-in or a Medicaid buy-in. I don’t think this will have too much impact on pricing in regions like Southwest Georgia which is an extremely high cost region not because of the lack of insurance competition but a lack of provider competition. This is where the third option to drive down prices has to come into play. An aggressive anti-trust enforcement out of DoJ for hospital consolidation and provider group mergers where the level of analysis is at the county or multi-county region is a needed step. Breaking up provider monopolies and provider cartels will drive down pricing as people and insurance companies will have viable alternatives.
Any of these options will drive pricing down without decreasing the acceptable minimal coverage. They are all more politically disruptive and politically risky. My assumption is that none of these options including the Copper plan will actually pass this Congress, so the policy question is subsumed by the political imperative. The question that the Copper plan raises is what is minimal acceptable coverage in our society. Begich and his co-sponsors say 50% acturial value, the Republican Party says no acturial value and PPACA says 60%. That is a moral question with technocratic overtones, not a technocratic question with moral overtones.