Deductibles, Co-Pays, Coinsurance and the Federal Government

It’s a pretty common refrain from our members, brokers and stakeholders of all stripes here at Blue Cross (and I don’t blame them):

“Mike, why do my deductibles, co-pays and coinsurance go up every single year?! It’s ridiculous!”

It is pretty annoying. Many factors go into rising premiums and cost share, the most important are increasing medical costs and utilization. However, if all costs remained steady, cost share would still go up annually due in part to the way the Affordable Care Act (ACA) is set up. Let me explain how it works.

The ACA and What You Pay

Inside the ACA, there are sections that basically took over the regulation of huge swaths of the health insurance business. All individual policies are federally controlled. Small group policies for employers in the 2-50 employee range are federally controlled, and this control spills over into the policies for larger groups as well.

How’s that work?

Simply put, the ACA created a process that redefines the value of a valid health insurance plan every single year. In building this process, the law’s authors decided they wanted a scoring system for health insurance to let consumers know what they were buying. So they came up with four “metal levels” to describe four different mathematical models used to build health insurance plans.

See, every time an insurance company like Blue Cross wants to sell a health plan to individuals or smaller companies, we have to submit the benefit design to the Feds for approval. And if we miss, they send it back to us for another try. This scoring applies to the entire individual plan market and every small group in the 2-50 employee range. And by forcing every health plan into one of these four scoring buckets, you’ll see below the Feds have locked health insurers into a trajectory that REQUIRES significant increases in cost-sharing every single year. The Feds actually did this on purpose when they built the system to make sure YOU had increasing skin in the game, as healthcare costs continued to increase.

If Blue Cross, or any insurance company, decided to defy the progressions in these models and hold cost-sharing steady on our customers’ plans from year to year, the federal agency scoring our plans (Center for Consumer Information and Insurance Oversight, or CCIO) would rapidly remove us from the individual and small group market, and then we wouldn’t be able to sell you anything at all. It’s a real Catch-22 because regulations control the value of the products we offer.

Metal Levels and Your Out-of-Pocket Costs

Here’s how the four metal-level health plan models work in the real world:

BRONZE PLANS are designed so that the member, through cost-sharing, will bear the burden of ~40%, on average, of their plan’s total healthcare costs out of pocket each calendar year. You might imagine to push the member’s responsibility to 40%, the formula will require some very high deductibles, co-pays and coinsurance. And it does. And, since medical costs and usage go up every year, to keep the member share at 40% of the costs, cost-sharing in the plan has to keep getting bigger. Since the member is stuck with paying 40% of the total costs, which leads to higher out-of-pocket costs on average, the premiums for the Bronze plans are the lowest available. And with the federal tax credits available on Healthcare.Gov, the premiums for Bronze plans are often $0.

SILVER PLANS are designed so that the member will bear ~30% of the total healthcare costs in the plan on average out of pocket every year. Cost-sharing is lower on Silver plans than Bronze plans, but out-of-pocket costs still can be substantial. Again, carriers like Blue Cross have to prove to CCIIO that their plans will force at least 30% of the costs back onto the individual. In addition, for reasons we really don’t understand, the ACA makes these Silver-level plans the “benchmark” for the entire market. That means when lawmakers wrote the ACA, they agreed that the “right” amount of coverage for the average customer was a Silver plan. Think about that for a minute. The lawmakers, in this case a Democratic Congress in 2010, actually designed the individual and small group healthcare market to push 30% of healthcare costs back onto you — on purpose!

Individual Silver plans also come with another benefit (but ONLY individual Silver plans — small group plans get no such benefit) that reduces cost-sharing for lower-income people. People with household incomes below 200% of the Federal Poverty Level won’t be sharing 30% of the costs like everyone else buying a Silver plan. The lower-income folks get Silver plans, but with much lower cost-sharing than everyone else because of this extra benefit (called a cost-sharing reduction). In fact, for people with incomes below 150% of Federal Poverty Level, the Feds have specified the deductibles and other cost-sharing will be $0! Again, you can only access this extra benefit if you buy an individual Silver plan.

GOLD PLANS are designed so that the member will bear ~20% of the total annual healthcare costs out of pocket. Although cost-sharing is lower than the standard Bronze or Silver plans, no cost-sharing reductions are allowed. So, if you buy a Gold plan, you are on the hook for the full amount of cost-sharing no matter how low your income. Often Gold plans, because of their slightly richer benefits, will have larger networks of specialists and doctors than a typical Silver or Bronze plan. For any health plan, it’s a good idea to check the network out before you buy anything.

PLATINUM PLANS are built specifically to make the member’s share only 10% of out-of-pocket costs overall. Because of the richness of Platinum plans, they tended to fill up with the people who had the most health needs. That drives up costs dramatically, so you rarely see Platinum plans anymore. Blue Cross does not offer Platinum plans in the individual market, but we do offer small group platinum plans.

The Outlook Is Still Upward

This entire scheme was baked into the original ACA. And although it gets tweaked from time to time by the Feds (I just received a 198-page update to the way the marketplace will do business under the Biden administration, and much of it was simply cancelling the way things were done under the previous administration), the underlying metal scheme and its unintended consequence of driving up your out-of-pocket cost-sharing each year is still in place. And it’s still pushing hard against your ability to afford to use your health insurance.

While you’ve heard me talking in some detail about how significant the advanced tax credits are in the individual market now and how this lowers most folks’ premium costs pretty dramatically when they’re buying individual coverage, these new credits don’t affect deductibles unless you are low income and buying an individual Silver plan. There’s no improvement to cost-sharing in other metal level plans or in any small group plan. Those just keep going up.

The Straight Talk is, if you are buying ACA metal-level plans for small group or individual, PLEASE use an agent. Licensed agents in Louisiana have dealt with this for nearly a decade now, and they are experts in helping you pick a plan that best suits your financial ability and needs. No matter what people say about the benefits of self-service, selecting a plan is best left to the experts who deal with this bizarre scheme every single day.

For individual coverage, our licensed Blue Cross agents are here and ready to help you navigate these choppy waters. Contact them at GetPlanOptions.com or 1-844-GET-BLUE.