The Marketplace Pulse series provides expert insights on timely policy topics related to the health insurance marketplaces. The series, authored by RWJF Senior Policy Adviser Katherine Hempstead, analyzes changes in the individual market; shifting carrier trends; nationwide insurance data; and more to help states, researchers, and policymakers better understand the pulse of the marketplace.
Cost-Sharing in the Marketplace
High and rising patient cost-sharing, especially deductibles, are a widespread and extremely unpopular feature of U.S. health insurance. High cost-sharing also increases disparities because lower income enrollees will disproportionately reduce their use of services when faced with higher costs. Small increases in out-of-pocket costs can make a big difference. A recent study showed that a small rise in co-pays significantly increased the likelihood that Medicare enrollees would skip medications. The average employee with individual coverage had a deductible of about $1,655 in 2020, and more than 60 percent of employees had a deductible of at least $1,000. Health Savings Accounts, which allow enrollees with high deductible plans ($1,400 or more for individual coverage) to save money tax free for medical expenses, are an imperfect fix that primarily benefit those in higher tax brackets.
Deductibles are High
Deductibles in the employer market are a source of widespread concern. But the situation in the marketplace is more extreme. For those with incomes below 250 percent of the federal poverty level, Cost Sharing Reduction (CSR) plans reduce out-of-pocket expenses. But for others, especially those in bronze and standard silver plans, deductibles are too high. The median deductible for a standard silver plan is nearly $5,000, more than twice as high as the average for an employer plan. Three quarters of standard silver plans have a deductible of more than $3,000. Deductibles are still higher in bronze plans, where the median deductible is $7,700, and 75 percent of plans have a deductible of at least $6,100. Even CSR plans with a 73 percent actuarial value have a median deductible of $3,500.
These statistics describe plans rather than enrollees, but focusing on plans issued by the insurers with the most enrollees paints an even grimmer picture. In plans issued by the top five parent carriers, who collectively enrolled a little more than 40 percent of individual market members, deductibles for silver and bronze plans are higher. The median deductible for standard silver plans from the top five parent carriers is nearly $5,500, and for a bronze plan the median deductible is $8,300. (The top five carriers are Centene Corporation, Blue Cross and Blue Shield of Florida, Kaiser Permanente, Anthem, and HCSC, which includes the Blue plans in Illinois, Montana, New Mexico, Oklahoma, and Texas. Enrollment data is from Q1 2021 and is for the individual market as a whole.)
“Low” Deductibles Can Come With High Cost-Sharing
Most plans in the marketplace have high deductibles. Unfortunately, even many plans with low deductibles have very high cost-sharing. This is often seen in plans with separate deductibles. Some plans separate their deductibles into two components—prescription drugs and medical—with different limits for each. In the marketplace, separate deductibles are relatively common at higher actuarial values. Nearly 40 percent of gold plans and about 30 percent of standard silver plans have separate deductibles, as compared with about nine percent of bronze plans.
The two separate components can be added together as an approximate comparison with integrated deductibles. On average, the total deductible is lower for plans with separate drug and medical components versus an integrated deductible, although there are exceptions. (For example, a silver plan in Wisconsin has a $7,000 medical deductible in addition to a $5,000 prescription drug deductible.) More commonly, drug deductibles are much lower than those for medical care. For standard silver plans in 2021 with separate deductibles, nearly half had a drug deductible of zero, with a median of $300. About 25 percent of standard silver plans with separate deductibles have a medical deductible of zero, with a median of $4,000. A very small number of silver plans (less than 1%) have no deductible at all.
Zero or very low deductibles sound appealing, but consumers need to look carefully at the plan's cost-sharing. Sometimes low deductibles are combined with a benefit design that is so austere that the plan's maximum out-of-pocket limit becomes the effective limit on consumer obligations. For example, a silver plan in Texas has a medical deductible of zero, but the patient obligation for an inpatient stay is 50 percent coinsurance. With the average cost of an inpatient stay at approximately $12,000, a considerable financial burden is placed on patients. A plan with a zero prescription deductible may have reasonable co-pays for generic drugs, but a steep coinsurance rate for specialty drugs that will persist until the patient's maximum out-of-pocket limit is exhausted. A silver plan in South Carolina is typical, with a zero drug deductible, but 30 percent coinsurance on specialty drugs. A patient with an expensive specialty drug could reach their maximum out-of-pocket limit in less than six months.
Cost-sharing is generally high for inpatient stays and emergency department (ED) visits. The kerfuffle over United Health Group’s (UHG) recent (and short-lived) plan to retrospectively review emergency department visits in the fully insured market generated quite a bit of consternation from patients and providers. (Under pressure from provider groups and many others, UHG relented, at least for now.) There was also an interesting benefit design angle to the story. The status quo cost-sharing for ED visits in UHG’s marketplace plans is daunting. For standard silver plans, in no state is the co-pay less than $300, it is sometimes as high as $950, and in every case is only relevant after the enrollee meets their deductible, which averaged about $4,500. While apparently UHG does not believe this amount of skin in the game sufficiently deters non-emergent use, consumers likely feel they have significant financial exposure for this expensive service. As we have described previously, cost-sharing for prescription drugs is another pain point in the marketplace.
How to Lower Cost-Sharing
While the American Rescue Plan (ARP) increased the size of and eligibility for premium tax credits on the ACA marketplace, it has no explicit provisions about out-of-pocket costs. The ARP does impact deductibles indirectly by making higher actuarial value plans more affordable. Many marketplace consumers improved their situation by switching to a plan with lower cost-sharing. In fact, CMS recently reported that median deductibles fell by 83 percent since the tax credit enhancements went into effect in April of this year, a combined effect of plan switching and new enrollees qualifying for highly-subsidized plans.
But despite the increased enrollment, many are concerned that high cost-sharing deters lower income people from enrolling in coverage, even with the new premium subsidies. Some fear that high cost-sharing will inhibit the broad adoption of marketplace plans, particularly by small employers through the Individual Coverage Health Reimbursement Arrangement (ICHRA). There have been a number of proposals to reduce cost-sharing in the marketplace, by extending the cost-sharing reductions to a higher income level, or by standardizing benchmark plans to gold. Standardizing plan design and improving the choice environment for consumers are also potentially helpful. In a letter to President Biden, Senator Jeanne Shaheen (D-NH) and co-signers recently encouraged continued attention to the problem of high cost-sharing.
There are also calls to increase the affordability of coverage more broadly. Researchers from Boston University urged President Biden to not neglect the problem of under-insurance—especially in the marketplace but also in the employer market—proposing that high cost-sharing be addressed directly by incentivizing employers to increase the generosity of coverage. Pediatric researchers recently argued that high cost-sharing in employer insurance was leading a growing number of families to enroll their children in Medicaid or CHIP if they were eligible. Creating an out-of-pocket maximum in Medicare Part D plans is an important current reform priority. While the high level of cost-sharing is a key differentiator between the ACA marketplace and employer-sponsored insurance, affordability is a system-wide problem. Most policy proposals rely on increasing subsidies, but cost containment will have to be part of any sustainable solution.
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