Catastrophic price shocks in 2015

Premium shocks will occur next year for catastrophic plans.

Wonk Blog explains why:

The high-deductible plans, which aren’t eligible for subsidies, were only supposed to be available to people under 30 or people who were unable to afford other coverage. Then the controversy over canceled health plans erupted last fall, and the Obama administration said anyone with a canceled plan can purchase catastrophic coverage.

At the end of February, young adults (ages 18-34) had accounted for 91 percent of all people picking catastrophic plans. By the end of enrollment, though, young adults accounted for 83 percent of all catastrophic plans. So that suggests that some people who had canceled plans did sign up for catastrophic coverage near the end of enrollment, but still a relatively small amount. Just about 89,000 people in all chose catastrophic plans in the federal exchange states.

The catastrophic plans that were sold in 2014 were priced for only 18 to 29 year olds.  That is the healthiest and cheapest group to cover and even then, there is significant age based variance.  Looking at Healthsherpa.com,  the cheapest catastrophic plan in my zip code for a 29 year old is 80% more expensive than the same plan for a 19 year old.  Adding a bunch of comparatively expensive middle aged adults to an already small risk pool in each state means the pricing model will blow up completely for at least several states.  Risk corridor and reinsurance will help, but the models were built with a certain set of assumptions that weren’t seen in reality. 

This is not the fault of the insurance companies, they followed the regulations and planning guidance in effect at the time the plans were submitted for regulatory approval.   

 

35 replies
  1. 1
    Zifnab25 says:

    When catastrophic care policies see their prices start lining up with standard care policies, how long until we can blame Obama?

  2. 2
    rikyrah says:

    isn’t this the
    ‘ I’m young an invincible’ policy?

  3. 3
    Richard Mayhew says:

    @rikyrah: yep it is — it was supposed to be the cheapest of cheap coverage that actually covered something instead of nothing. It is “hit by the bus” insurance/”Congrats, you have cancer” insurance

  4. 4
    Richard Mayhew says:

    @Zifnab25: It depends — the rest of the Wonkblog article has some income breakdowns on catastrophic coverage (or at least subsidy status breakdowns), and catastrophic was reasonably popular with people who made just a bit too much to qualify for subsidies but not enough to have a ton of extra income lying around. Narrowing the price points between unsubsidized Bronze and unsubsudized catastrophic will shift a few people to Bronze, but unless the subsidies get richer/go further up the income scale, there will be some people who will buy catastrophic OR go naked and pay the mandate penalty.

  5. 5
    NonyNony says:

    Okay, that’s all fine and dandy (I think catastrophic coverage should be disincentivized – there’s too much of a free rider problem there. If a Bronze or Silver plan is out of reach that means we should have more subsidies, not catastrophic plans. And if it isn’t out of reach and you’re just playing Russian Roulette with your family’s health then screw you.).

    But how many people were they expecting to see in that pool of catastrophic plans to begin with? That 89,000 people pool seems like it should be under projection because it looks like most of the 18-34 year olds on the Federal Exchange bought a Silver or Bronze plan just like everyone else. Was that expected too? That strikes me as a very low percentage given how the conversation about health care was going last year – everyone was so sure that young people were undervaluing health insurance, and yet that doesn’t seem to be in evidence here. And wouldn’t that increase the costs of catastrophic plans anyway because the risk pool would be smaller than expected? Or was that all just squid ink and the actuaries knew all along that young people would be buying plans pretty much in line with everyone else?

  6. 6
    kc says:

    @Richard Mayhew:

    It’s the “only policy I can afford policy” for some people.

  7. 7
    NonyNony says:

    Damn it. Moderation. I think I mentioned some word that shouldn’t be mentioned. Probably involving a certain recreational game involving probabilities. Dammit.

    Okay so my question was – is that pool for catastrophic plans among the younger demographic lower than expected, or was the whole “young people think they’re invincible and won’t buy insurance” meme just completely overblown and the actuaries knew what the risk pool was going to look like? Because the tiny risk pool strikes me as more of a potential problem for catastrophic plan pricing than older people sneaking in.

  8. 8
    Richard Mayhew says:

    @NonyNony: I’m not an actuary, so this is mainly general knowledge/heard getting coffee knowledge.

    The projection was that the catastrophic risk pool was always going to be small. It was going to be small for two reasons.
    1) Age limited by law
    2) De facto income limited. It only made some sense to go catastrophic if a young adult’s income was above the subsidy cut-off point (no more than 400% FPL, could be less in low cost areas where the subsidies were lower)

    The target market for catastrophic was always mid-20 somethings who were either covered by the individual market or not covered, making at least $44,000/year and not able to access parental or employer insurance. As you can see, there are some seriously limiting caveats to the size of the potential Catastrophic marketplace.

    Anyone making under $44,000/year but meets the other criteria gets a better deal on the Exchange with either subsidized Bronze or subsidized Silver with cost sharing assistance if the income is in the 20s. Most people who are making $44,000 or more probably have access to employer sponsored coverage. It was always going to be a thin slice. I don’t know if the projected slice was 2% of Exchange enrollment or 1% or 4.5%, but it was always going to be a thin slice.

  9. 9
    Richard Mayhew says:

    @kc: yep, but next year with the projected rate increases, Bronze starts looking a whole lot better, or running naked and paying the penalty looks to be a better choice.

  10. 10
    flukebucket says:

    In all honesty running naked and paying the penalty looks like the best option any way you look at it.

    What would the penalty be for a married couple making $100,000 per year combined?

  11. 11
    Ronnie Pudding says:

    This one’s on Obama. They made a short-term political decision which is going to hurt a bit next year. If the Dems lose the Senate anyway, it will really suck.

    In all honesty running naked and paying the penalty looks like the best option any way you look at it.

    What would the penalty be for a married couple making $100,000 per year combined?

    They’re going to run naked? Keep in mind, this couple isn’t likely to be 24 years-old.

  12. 12
    Huggy Bear says:

    @flukebucket: That logic works until someone in this hypothetical family has an incident. That $40,000 medevac ride from the ski slopes that’s paid out of pocket will look pretty spendy when compared to a couple of years of paying the penalty instead of an insurance premium.

  13. 13
    sparrow says:

    @flukebucket: Huh? Looks like a good option until you get cancer, have a complicated pregnancy, get hit by a bus… going without insurance is for delusional people who think they’re so special nothing will ever happen to them. My sympathies are only with the people who should have been covered by medicare but weren’t. If you’re making 100 large, buy the damned insurance already and quit whining.

  14. 14
    good2go says:

    “This is not the fault of the insurance companies, they followed the regulations and planning guidance in effect at the time the plans were submitted for regulatory approval.”

    And of course the insurance companies had absolutely no role in determining what the regulations and planning guidance were, except maybe writing 95 percent of it.

    Everyone needs to remember (“This one is on Obama”) that PPACA is the way it is because it has to be. The vested interests would not allow the law to come into being without being thoroughly protected and grotesquely profitable. Hence all the convolution and oversights…because the focus was on the profiteers, not the patients–the oligarchs, not the people.

  15. 15
    Rob in CT says:

    @flukebucket:

    A couple making $100k/yr can afford decent health insurance, FFS. “Running naked” would be stupid as hell for them.

    “Running naked” might make a certain amount of sense (though I wouldn’t advise it) for a young single person making decent but not fantastic money and who doesn’t get employer-provided insurance. I’m not sure how many people fall into that category, but they exist and that’s one reason for the mandate.

  16. 16
    Another Holocene Human says:

    Once again, you have the “losers” from PPACA, people who had super-sekrit-never-had-a-‘condition’ plans on the private market which were supposed to go away for non-compliance, but they squealed. Yet the truth is pre ACA they would have been dropped from those plans as soon as a ‘condition’ manifested, so they are like the post-ACA freeloader conservatives whine about who pays fines rather than buy health insurance annually and then wants coverage when they get sick. It’s pretty much the same except the title the insurance company gives it in an elaborate stage play where everyone pretends the system is something entirely unlike what it actually is. In short, fuck those people.

  17. 17
    Another Holocene Human says:

    @Rob in CT: I think it’s actually more entertaining for everyone to watch the hospital bill collector ruin them slowly. $100k/yr isn’t fuck you money* but it’s definitely enough for a creditor to want to get a piece of that income stream and, failing that, attach every asset. The salty tears as this couple (with their 1.8 kids) cries poverty after the bills come due will be sweet and refreshing.

    *-which means they can’t get Koch Bros caliber lawyers and accountants to make all their problems just go away

  18. 18
    Another Holocene Human says:

    @good2go:

    Hence all the convolution and oversights…because the focus was on the profiteers, not the patients–the oligarchs, not the people.

    Hence all the focus on cost controls and evidence based therapies because whargle barge.

  19. 19
    Richard Mayhew says:

    @flukebucket: in 2014; it is 1% of your income per person, or $2,000, in 2015, the mandate penalty is 2% per person, or $4,000, in 2016 and going forward it is 2.5% of income per person, or $5,000. It is capped at the cost of the average Bronze plan in the country.

    This year, going naked might be cheaper, but the penalty starts to bite pretty hard next year.

  20. 20
    Another Holocene Human says:

    @Richard Mayhew:

    catastrophic was reasonably popular with people who made just a bit too much to qualify for subsidies but not enough to have a ton of extra income lying around. Narrowing the price points between unsubsidized Bronze and unsubsudized catastrophic will shift a few people to Bronze, but unless the subsidies get richer/go further up the income scale

    Because of our current useless, make-the-rich-richer tax system, people further up the income scale actually experience more status anxiety. Thus, it’s not surprising that these folks would make such a ridiculous trade-off while folks lower down the scale may have dug into their pockets (remember, the subsidies scale, plus there are a lot of people who fall into subsidy donut holes).

    This is Keeping Up With The Joneses, Tragic Edition.

    Progressive taxation would actually reduce stress and add years to Americans’ lives, but don’t tell them that.

  21. 21
    flukebucket says:

    How much is the penalty?

  22. 22
    flukebucket says:

    @Richard Mayhew: Thank you very much. Right now I am paying $16,056 per year and will continue paying that. That premium is for a $1,500 deductible. I live in Georgia but got the insurance through the exchange. Believe it or not that premium is 12% lower than I was paying and the deductible is lower than the one I had before PPACA.

  23. 23
    darms says:

    Richard, thank you for your essays, I have found them to be interesting & informative. Back in 1964 my family was involved in a horrific traffic accident that among other things had me in a hospital for three months. I asked my mother how we could have afforded that much care and what she told me was that my father had what we now call a catastrophic care policy which apparently paid for our hospitalizations. Yet routine doctor visits & medications were not covered, we paid the providers directly. But that was okay because at the time these doctor visits & medications were affordable unlike today where it’s $200+ for a routine doctor visit if one is paying cash.
    My situation these days is a bit special, I have a concierge doctor who charges me $50/month for “all I can eat” GP care and I can afford as much as $5K medical bill should the need arise plus at 57 I will refuse treatment for most forms of cancer/organ transplants et al so what I want is a catastrophic care plan that will keep me & my wife from being wiped out financially should some medical emergency arise. What I find frustrating about the ACA is that they do not offer this sort of insurance for me, instead all I find are bronze & silver plans starting at ~ $600/month, plans that 1) do not cover my concierge doctor & 2) are unneeded for meds as all I am ever prescribed is the occasional ($4) generic. (I do not qualify for subsidies) What can you tell us about doctors who take only cash & do not have the overhead of taking insurance? Seems to me that is a viable model as their overhead would be significantly less as they do not have to hire people to deal with the hassle of filing & collecting insurance claims.

  24. 24
    darms says:

    Richard, while I’m on a roll, one more – what do you think of today’s system in which uninsured patients are in effect subsidizing insured patients? Case in point, my wife’s chiropractor charges $60 for a service but her insurance only allows $35. But for some reason her insurance will not pay for that service so my wife is charged the $35 as a copay, yet an uninsured person will be charged the full $60! (I can provide many more similar examples) Why is this legal and what can the uninsured/catastrophic care-insured do about rip-offs like this? I have complained many times to many people to no avail, of course, but all the same this is an outrage.

  25. 25
    Richard Mayhew says:

    @darms: I’ll reply either tonight or tomorrow (depends on when Kid #2 goes to bed tonight as he is having a growth spurt that is messing up his sleep pattern right now)

  26. 26
    NonyNony says:

    Why is this legal and what can the uninsured/catastrophic care-insured do about rip-offs like this?

    This is legal because you’re looking at it backward. The insurance companies are using their bargaining power to negotiate a lower rate in return for guarantee of payment and a stream of customers. If that lower rate is too low, the doctors will refuse to take the insurance (if they can – that’s a glib answer because in some areas the doctor will be SOL if s/he decides to not take a particular carrier’s policyholders, but that’s the basic idea).

    The uninsured pay a higher rate because they lack the ability to negotiate collectively – basically a good-sized chunk of what we pay for in insurance is to have the insurance company negotiate rates on our behalf and decide what a reasonable amount is to spend for procedure X or consultation Y. Uninsured folks are walking into those negotiations without an advocate and, just like most folks who walk into court without a lawyer, they get screwed. But it’s a perfectly legal screwing because there’s rarely monopolistic practices or anything like that going on – just negotiation of deals.

  27. 27
    darms says:

    @NonyNony: Your #2 graf spells out my complaint succinctly yet does not address my question – I know how the system works, my question is why is this legal? Why can not I as an uninsured person demand to pay the same rate as an insured person, given that 1) they are asking me for 2x the money which is 100% pure unearned profit as they did no additional service for my 100% ‘overpayment’ 2) my paperwork charges are eliminated as I am paying cash on the spot in effect making me even more profitable to a health provider. IOW why are they allowed to gouge me in this way? Why can I not purchase (for a small sum like ~$10/month or less) an “insurance rate” card that entitles me to the same exact rates the care provider bills the insurance company? Why do I have to subsidize these f!ck@ng billionaire #ssh$l%s yet again?

  28. 28
    Richard Mayhew says:

    @darms: We operate in a lightly regulated system where there is minimal political or social will for price setting. That is the shortest answer.

    Do you think you have a good argument that since WalMart charges 5.99 for a pack of socks and little do everything shop on the corner is charging 9.99 for the same pack of socks because the little shop has absolutely no purchasing power to drive down its price with the wholesaler, that all socks should be priced at $5.99?

    This is the world we live in

  29. 29
    Richard Mayhew says:

    @darms: As far as a $10/month insurance pricing club membership, keep on dreaming.

    the closest thing you could get to that pre-PPACA was a $25,000 deductible plan where it is effectively a membership card plus some catastrophic coverage. And that is much more expensive than $10/month. As soon as an insurer brings you into the network/coverage even if it is pricing only coverage, they incur some significant costs to track your claims. It might be something that could be sold for $40 or $50/month to cover costs.

  30. 30
    darms says:

    @Richard Mayhew: Forget Wal-Mart, I’ll hit the thrift store instead. Where is my “thrift store analogue” for health care other than ‘prayer’? Also, if a clinic or physician refuses to give me an accurate cash estimate upfront for a procedure I’ve learned (the hard $$$ way) to find another provider instead who will. My ‘Wal-Mart sox” are marked $5.99. Why can’t I get the same price tag for an endoscopy?

  31. 31
    kc says:

    @Another Holocene Human:

    Lovely attitude.
    If this is liberalism, fuck it.

  32. 32
    Richard Mayhew says:

    @good2go: Ok, please give a plausible pathway for 2007-2010 that could get 60 votes in the Senate, 218 in the House, a presidential signature and 5 votes on the Supreme Court that accomplishes at least what Obamacare is projected to accomplish without using a significant chunk of the private insurance market as substructure for expansion. Please remember to make a special provision for Joe Lieberman

  33. 33
    xian says:

    @Richard Mayhew: I don’t think you two are really disagreeing, except in affect.

  34. 34

    This is the second group that’s badly affected by the ACA: older people who were squeaking by on bad cheap insurance who could—and still can’t—afford anything better.

    The ACA’s pricing rules assume that people’s incomes rise throughout their lives until retirement, which has never been entirely true and in this depression is now largely false.

  35. 35
    pseudonymous in nc says:

    @kc:

    It’s the “only policy I can afford policy” for some people.

    True, but that’s not really an answer. It’s better than the previous “so shitty you can’t call it insurance” tier, but it’s still shitty. The incremental step is to make the shitty tier the one that’s somehow paid out of general revenues and everything else becomes an upgrade. That only potentially becomes plausible in, gawd, let’s say 2020?

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