Out-of-pocket costs vary widely by plan for those eligible for cost-sharing reductions

Out-of-pocket costs for people who qualify for the cost-sharing reductions set forth in Section 1402 of the Patient Protection and Affordable Care Act’s (ACA’s) (P.L. 111-148) vary widely by plan, according to a new study from the Commonwealth Fund, a nonprofit foundation that supports health policy reform research. The study examined plans available in the largest markets in 38 states using the federal marketplace.

Cost-sharing reductions, which are available for people who buy silver-tier health insurance plans on the marketplaces and have low or moderate incomes, can lower deductibles by thousands of dollars. They are estimated to substantially reduce out-of-pocket spending, especially for people using the most health care services. The figures used by Commonwealth Fund for total expected annual costs came from HealthCare.gov.

The study found that cost-sharing reductions substantially lower deductibles and out-of-pocket spending limits, as well as copayments for primary care and specialist visits, generic and preferred drugs, and emergency room visits. However, how much those costs are reduced depends on the way individual health insurance plans are designed, leading to variation from plan to plan in potential out-of-pocket costs.

“We know that when people have health insurance but their deductibles, co-pays, and other costs are more than they can afford, they don’t get the care they need,” said Commonwealth Fund President David Blumenthal, M.D. “This study shows that features of the Affordable Care Act are working to make health care more affordable for many Americans. But we must continue to find ways to ensure that those with limited resources have adequate protection against the high cost of health care.”

“The Affordable Care Act’s cost-sharing provisions will reduce out-of-pocket costs substantially for low- and moderate- income people. However, because health insurance plans are so different, how much your potential costs drop depends on where you live and how much care you need,” said Sara Collins, Vice President for Health Care Coverage and Access at The Commonwealth Fund and the report’s lead author. “Making plan design more consistent could simplify plan choice and help equalize costs for people across states.”

Deductible exclusions. The study also looked at deductible exclusions, whereby insurers will cover certain services without the enrollee needing to meet the plan deductible first; instead, only a copayment or coinsurance is required. The researchers found that many silver-tier plans exclude from deductibles a number of additional services beyond the preventive care the ACA requires insurers to fully cover. In fact, 30 of the 37 plans analyzed that had deductibles exclude primary care visits and generic drugs from deductibles, and a majority of plans also excluded specialist visits, prescriptions for preferred drugs, and mental or behavioral health outpatient visits.

How cost-sharing is working for enrollees. Cost-sharing requires that insurers offer low-and moderate-income people the option to buy a silver plan that, with cost sharing reductions, covers an average of between 73 percent and 94 percent of medical costs. This is more coverage than the silver plan without cost sharing reductions, which covers only 70 percent on average. Qualifying for the reductions are individuals with incomes between $11,770 and $29,425 a year and families of four earning between $24,250 and $60,625—an estimated 7 million of the 12.7 million people who selected plans in the 2016 open enrollment period.

The reductions, however, are the subject of a lawsuit, House of Representatives v. Burwell, that is currently making its way through the federal court system.

The researchers calculated the median out-of-pocket costs for a hypothetical, 40-year-old nonsmoking male who would not qualify for cost-sharing reductions and compared them with those for a similar individual who is eligible for a plan with cost-sharing reductions. The Commonwealth Fund states that it’s important to note that even though the researchers used a hypothetical man, the findings apply to both genders with the exception of out-of-pocket costs, which could be higher for women, who use more health care.

The study revealed the following about cost-sharing reductions relative to silver tier plans in 38 markets in states using the federal enrollment website:

They lower deductibles by thousands of dollars. The median deductible with cost-sharing reductions drops to $2,500 for an enrollee making $25,000 a year and $125 for an enrollee making $17,000 a year, compared to a median deductible of $3,500 for an enrollee who makes $35,000 a year or more and doesn’t qualify for the cost-sharing reductions.
They reduce out-of-pocket limits. The ACA requires insurers to limit enrollees’ yearly out-of-pocket spending, with lower levels for lower-income people. The study found that the median out-of-pocket annual spending limit for the 38 silver plans is $6,500. However, the cost-sharing reductions, combined with the law’s lower out-of-pocket spending thresholds for lower-income people, reduces that limit to $5,000 for an enrollee earning $25,000, $1,850 for an enrollee earning $20,000, and $650 for an enrollee earning $17,000.
They drop copayments and coinsurance substantially. In about three-quarters of the plans studied, copayments for primary care visits are lower for enrollees with incomes of $17,000 and $20,000 compared to those with incomes of $35,000. In 18 plans, enrollees with incomes of $25,000 have copayments for primary care visits that are lower than those of enrollees earning $35,000.
They will keep out-of-pocket costs down for people who use the most health care. The projected median out-of-pocket expense for a 40 year old male who is a high user of health care across the 38 markets is $6,500. Cost-sharing reductions lower out-of-pocket costs for high health care users to $4,949 for a man earning $25,000, to $1,850 for someone earning $20,000, and to $650 for someone earning $17,000. Women who are high health care users would face similar out- of-pocket costs.

Moving Forward. The authors of the study note that, in 2017, CMS will give insurers the option of offering a set of standard plans in the federal marketplaces that feature fixed deductibles, out-of-pocket limits, and copayments or coinsurance for health care services, as well as exclude a defined set of services from the deductible. According to the Commonwealth Fund, if insurers take up the option, it will be easier for consumers to compare their potential out-of-pocket costs under different health plans when they shop for coverage. The standard options could also lead to more equal consumer spending.

The study’s authors looked at the second-lowest-cost silver plan, in each of the states that used the federal website HealthCare.gov to enroll consumers in marketplace plans for 2016. They collected information for a 40-year-old, nonsmoking male in the most populous city of each state.

The Commonwealth Fund analysis focused on adults at four annual income levels: $17,000, $20,000, $25,000, and $35,000. People with incomes between 100 percent and 250 percent of poverty who purchase silver-level plans through the marketplaces are eligible for cost-shar¬ing reductions that increase the actuarial value—that is, the cost protection—of their plans through lower deductibles and copayments. People with incomes of $17,000 are between 100 percent and less than 150 percent of poverty and are eligible for cost-sharing reductions that increase the actuarial value of their plans to 94 percent; for those with income of $20,000 which is between 150 percent and less than 200 percent of poverty, it increases to 87 percent; and for those with income of $25,000 which is between 200 percent and less than 250 percent of poverty, it increases to 73 percent.

SOURCE: Commonwealth Fund press release, March 17, 2016.

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