For me, donuts go to my waist.
But this is a follow-up to my earlier post on the distributional outcomes of different cost sharing types. There is a plan design that is becoming more common and that is the high deductible donut design. Andrew Sprung has been bulldogging this subject for a while so let him describe it:
One insurer, Ambetter, is pushing such donut hole coverage, and grabbing the key benchmark silver and cheapest silver positions in many markets. In those markets, Ambetter offers a half dozen silver plans that are all cheaper — often way cheaper — than the nearest competition, in many cases pricing competitors out for price-sensitive buyers. And price-sensitive buyers have been the majority on the exchanges, where the cheapest silver plans are the best sellers. Ambetter combines appallingly high silver deductibles with an unusually large set of services discounted before the deductible. In Chicago, for example, Ambetter’s cheapest silver plan has a $6,500 deductible and out-of-pocket (OOP) max for a single buyer who earns too much to qualify for Cost Sharing Reduction (CSR). For a buyer who qualifies for the weakest level of Cost Sharing Reduction, the deductible and OOP max are $4,500.
How can these bronze-levels deductibles be offered with a silver plan? By providing these benefits beneath the deductible…..
As Andrew notes, this is a bastard son of mini-medical plans and stop loss insurance. There are some low level benefits that the insurer covers, a big gap that the insurer won’t cover (the donut hole) and then complete coverage after the gap. It is similar to how Medicare Part D was originally set up.
What are the distributional impacts of this plan design?
Let’s go get our four fake people and work through their situations again:
No Use Nora — she uses her essential health benefit PCP and OB-Gyn appointment and gets a flu shot in October every year at work. Other than that, she has not used any medical services in the past three years.
Low Use Larry — He also uses his EHB, but he’ll go to the urgent care twice a year and he went to the orthopedist once this year as he tweaked his ankle hard. He had 5 physical therapy appointments and three cheap generic prescriptions.
Medium use Maura — She has well controlled Type 2 diabetes and her blood pressure is a bit higher than it should be. She’ll see her PCP for six sick visits per year and then a specialist once a quarter. Her prescriptions are a combination of low cost generics and three brand name drugs.
High use Harry — The past two years have not been good for Harry. He is still fighting cancer and the combination of chemo drugs and being worn down has led to a series of opportunistic infections. Every morning he wakes up, goes to the bathroom and then swallows eleven pills…..
Nora again is not kicking any money into the pool to cover the non-covered actuarial value as she is using no services. Larry has small co-pays for urgent care, specialist and physical therapy visits. His drugs cost him $30 for the year. His total out of pocket is about $350 for the year.
Medium use Maura is seeing $300 in co-pays for her doctor visits and probably $2,000 in drug co-pays for the year (3 brand @$50/scrip/month, generics @$15/scrip/month) Her total exposure is $2,300 for the year.
Harry is seeing a doc at least twice a month and is going into the hospital a couple of times per year. The first hospitalization blows through his deductible by day 3.
The donut hole design puts
more risk and thus more costs on the heaviest and most expensive users of the system. That means more of the burden of covering the risk pool’s uninsured actuarial value falls on the chronically ill who tend to be poorer than average because it is hard to work at an individual’s highest and best levels when that individual is seriously ill. The design that Ambetter uses (and a few other insurers that I know of) hammers people for using a hospital or high end diagnostics. In any given year for the 18-64 year old population, not many people use high end services, so cost sharing would be extremely concentrated.
For people who are reasonably healthy, these donut designs look really attractive as long as they stay lucky/healthy. Most of their services are fairly cheap out of pocket and the premiums are slightly lower than they otherwise would be because anyone who is chronically ill and not extremely price sensitive will choose more traditional plan designs that feature a first service deductible design as the primary cost sharing feature.