Thursday, July 12, 2012

The ACA and cost-sharing

The ACA will put limits on "cost sharing" - i.e., deductibles and co-pays - for all insureds. 

Section 1301(c) provides that employer-sponsored health insurance policies may not impose total deductibles and copayments over $2,000 for a single person or $4,000 for a family. That, and the prohibition on any cost-sharing for certain preventive services, discussed below, is the only limitation placed on coverage by medical insurance paid by the employer outside the exchanges. 

For coverage under the exchanges, the calculations are much more complicated. There will be limits which apply to all cost-sharing for most plans, and there will be separate "actuarial" requirements which will also affect the cost of coverage. This is from the Kaiser Foundation's "Questions about health insurance subsidies": 
PPACA sets maximum out-of-pocket spending limits (discussed below), but otherwise does not specify the combination of deductibles, copayments, and coinsurance that plans must use to meet the actuarial value requirements. So, for example, one plan may choose to have relatively higher deductibles but relatively low copayments for office visits and other services, while another plan may choose a lower deductible but higher copayments or coinsurance for each service. The Secretary of Health and Human Services may choose to address this issue through rulemaking. 
Section 1302(c)(1) provides that the annual limitation on cost-sharing for exchange-provided coverage is the amount specified in section 223 of the Internal Revenue Code, 26 USC § 223(c)(2), for high-deductible health plans under health savings accounts. That section imposes these limits: 
  • Maximum deductible of $1,000 per person, $2,000 per family 
  • $5,000 limits on total deductibles and copays
These cost-sharing maximums are then reduced (section 1402) for those with a household income under the "400% of Federal poverty limit" level - about $100,000 for a family of four in 2014 - when enrolled in a "silver" level exchange-provided health plan.  (No such limits are specified for other levels of coverage.) This is accomplished in a complicated three-step fashion. 

Step 1 - direct limits on cost-sharing - 1402(c)(1)(A)

The following chart shows how the reduced maximums are implemented for a family of four, again using the 2012 Federal poverty limit figures, and based on the $1,000 per person, $2,000 per family limits:

Thus, for a family of four with less than $46,100 in household income, the $2,000 maximum deductible is reduced to $667 per year. The $5,000 total cost-sharing limit for that family (not shown) would be reduced to $1,667 per year. 

Step 2 - coordination with actuarial value limits - 1402(c)(1)(B) 

This one is the most difficult to comprehend and involves a great deal of uncertainty and unpredictability. Much will depend on the details of the regulations to be adopted by the Department of Health and Human Services. The statute states "The Secretary [of HHS] shall ensure the reduction does not result in an increase in the plan's share of total allowed costs" above certain percentages, according to income: 
  • 90% for those between 100-150% of the FPL
  • 80% for those between 150-200%
  • 70% for those between 200-400%
The goal is to provide, on average, that the lower-income insureds will pay 10% of their medical costs, those earning a little more 20%, and almost everyone else paying 30%. The way that the statute is written, however, those insureds will have to pay at least 10%, 20%, or 30% of the cost of health care, and may have to pay more, as deductibles or co-pays. These provisions are not maximums on payments by citizens, they are minimums. 

Step 3 - lower income persons - 1402(c)(2)

There is a further reduction for "lower income insureds", those making less than 200% of FPL - $22,340 for a single person, $46,100 for a family of four. Roughly speaking, those with incomes from 100-150% of FPL will have cost-sharing reduced to approximate the platinum level coverage, and those from 150-200% the gold level, without having to pay the difference in premium.

We do not know whether anyone has yet noticed that each of these steps more or less accomplishes the same thing. Perhaps someone will figure it out. 

No cost-sharing for preventive services

For certain types of medical services, such as annual Pap smears and mammograms for women, prostate testing for men, blood pressure screening, lab tests to screen for high cholesterol or diabetes, prenatal care, well baby checks, etc., no cost-sharing is allowed. Those services have to be paid for by an employer health plan without applying the otherwise-applicable deductible, and without co-pays. (Section 1001) The same will apply to coverage provided through the exchanges. 

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