Health Policy$ense

Should Lower Income People be Allowed to Buy Cheap Health Plans?

We Need a Realistic Adult Conversation About The Meaning of 'Affordability'

Cross-posted with the Field Clinic blog

The Affordable Care Act provides generous subsidies to lower income people to help them, well, afford to buy health insurance. The primary effect of the subsidies is to lower premiums for policies bought on the insurance exchanges, although people with very low incomes (below 250% of the federal poverty line) can get additional subsidies to lower deductibles and co-payments if they choose the second-cheapest tier of coverage (silver).

Let’s consider a single person in Philadelphia making $26,000 a year (about 225% of poverty) who is 35 years old and does not smoke. For 2015, that person can get a subsidy of $1,218 a year for any qualified health plan. This would yield a net premium of $1,857 for the second lowest-cost silver plan versus a premium of $1,255 for a typical bronze plan. So which plan should that person be advised to buy, and would that person then be able to afford health care?

If other aspects of coverage were more or less equal, the difference in premiums would seem to make the choice a no-brainer—buy the bronze plan. But, experts will correctly tell you, pay attention to the coverage as well. The silver plan is supposed to pay (with the cost-sharing subsidy available at your income level) about 73% of your insurable health care costs, while the bronze plan need cover only 60%. That means the bronze plan will have higher deductibles and coinsurance — although total out-of-pocket payments will be capped ($6,350 under bronze and $5,200 under silver).  (That cap would not cover extra costs to use a doctor or hospital not in the plan’s network.)

Here is the point commentators view with alarm: certainly under the bronze plan, and even under the silver plan, those out-of-pocket payments will make you less likely to use care. And the payments could turn out to be high relative to this person’s income. Mightn’t the care that is foregone be beneficial for their health, even beneficial enough to be called “needed” care? Consumers might well feel, as one stated recently in the New York Times, that “medical care costs too much and (this) insurance, as it stands, doesn’t address that.”

If someone did forego care because of copayments and deductibles, that person probably would, if asked, say that it was because he or she couldn’t “afford” it — even though the Democratic designers of Obamacare chose those limits on minimum benefits and then named their law that subsidized them the “Affordable Care Act.”  They must have thought low-income people could afford it — even at a cost that would leave little for other needs.

How to settle this, or even think clearly about it?  Shouldn’t everyone get coverage that “addresses the high cost of care”?  More generous coverage — the gold or platinum tiers on the exchange - would do that. If we think that bronze or silver cost sharing is going to adversely impact lower income people “who have the most trouble coming up with money” the most, shouldn’t the regulations on minimum coverage be changed to rule out such “under-insurance” plans? Perhaps the purchase of bronze plans should only be permitted for people with MBAs, high incomes, or flush bank accounts.

But, it is easy see, whatever benefit such a change would provide to those lower income people who do get sick, its downside is that all lower income people would have to pay even more for premiums if the subsidy stays as it is written in the law. They would be less impoverished when ill, but more financially strained when well.

Framing the question in this way, I believe, is helpful to get us to focus on the real challenge. The most obvious alternative to forbidding cheap insurance for low-income people would be to up their subsidies for generous plans, but that would require a larger burden on the public budget, something that does not seem to be in the cards for the federal budget for the near future (though there is nothing to stop a state, or even a city, say Seattle, from doing so).

More fundamentally, increasing taxes to pay bigger subsidies will run into taxpayers who say they cannot afford the cost. The other candidates for help also do not look good. Squeezing insurers would be difficult because competition and ACA “medical loss ratio” regulations mean they are running on thin profit margins. Hospitals and doctors are already being hit hard by Medicare. The defense budget has been slashed, and “the rich” are not about to step up to the plate in this political climate.

The main point here is that it is not enough to lament the fates of the unlucky who chose limited insurance and then got the short end of the financial stick. There needs to be a realistic, transparent, adult conversation about what we really mean by “affordability” (since it is, after all, a subjective social concept, not a financial one), especially as regards the shares to be paid by beneficiaries and taxpayers. We need to decide who can afford to pay how much and how much care we want them to be able to afford.