How to Improve the Selection of Consumption Plans in ACA Markets – Part 1
Return to Health affairs tomorrow when Part 2 of this two-part article describes additional opportunities to improve consumer choice.
There is currently an opportunity for the Centers for Medicare and Medicaid Services (CMS) to help consumers enroll in better Marketplace coverage in 2022. By adjusting how returning Marketplace enrollees are automatically re-enrolled in coverage, CMS can push more enrollees into plans that offer both lower premiums and reduced cost sharing. Here we outline the steps to improve the selection of consumption plans that CMS should do, placing this in the context of the American Rescue Act (ARA).
COVID-19 relief and the markets
As a candidate, President Joe Biden’s healthcare platform focused on strengthening the Affordable Care Act (ACA) insurance coverage extensions. His proposals included creating a public option and increasing the size and eligibility for premium tax credits for health plans sold in the ACA health insurance markets. With a narrow Democratic margin in the Senate, the administration faces a tough climb to pass a public option. However, premium tax credits far more generous than basic ACA aid have already been passed by Congress and enacted by the president. The president also signed an executive order that aims to minimize administrative burdens and barriers to enrollment and maximize the affordability of coverage. Section 3, paragraph IV decree requires agency heads to review rules that may “present unnecessary obstacles to individuals and families,” while paragraph V requires a review of rules that “reduce affordability of coverage or financial assistance for coverage ”. Current market rules and procedures that put people in lower diets with lower actuarial value and equal or higher premium would likely be contrary to these presidential guidelines.
Premium tax credits bridge the gap between what a market registrant is expected to pay for a designated reference plan and the total gross premium for that plan. In the system of the four levels of metals (bronze, silver, gold, platinum), the reference plane is the second cheapest silver plane. Under the current ACA, people with incomes 150% of the federal poverty line pay 4.14% of their income ($ 66.03 / month) for the cash referral plan.
Additional Cost Sharing Reduction (CSR) grants for people below 250% of poverty make money plans the most frequently chosen option for relatively low-income households, as CSR grants reduce considerably deductibles and quotas of money plans. Under the ARA, all eligible households earning less than 150% of poverty have access to a zero-premium CSR money plan with an actuarial value of 94%. Zero premium plans are available when a buyer chooses a plan that is priced below the referral premium and the difference in monthly premiums is greater than the individual’s expected payment for the referral plan. The law also reduces by more than half the premiums of the reference scheme for households earning 200% of poverty.
The legislated increase in premium tax credits will result in a significant decrease in premiums for registrants who currently pay premiums (Table 1). Unfortunately, the subsidized market is characterized by significant inertia where people stay in their original plan without re-examining their options in subsequent years. People will stay in their original plan until there is a strong incentive to pay attention, such as a big change in monthly premiums. For example, subsidized buyers saw a significant reduction in premiums in 2018 due to a change in federal policy on funding CSR benefits. Plan change behavior has increased, but not drastically. Those that haven’t changed have often stayed in “strictly dominated plans”, defined as plans where premiums and cost sharing are worse than comparable alternatives offered by the same insurer on the same network.
Exhibit 1: Maximum federal poverty level for a 40-year-old non-smoker single to be exposed to a zero-premium money plan on Healthcare.gov in 2021
Source: 2021 Landscape Public Use File authors’ calculations for the availability of a zero premium, 100% money plan for essential health benefits for a 40-year-old single non-smoker for states using the federally facilitated marketplace, Healthcare.gov. Note: Several states impose non-Hyde abortion benefits, which precludes the availability of a zero premium plan
Automatic re-enrollment and choice of dominated plan
The increase in premium tax credits will interact with the current auto-reenrollment rules to fail many low-income market registrants in these dominated plans in 2022. Unless these rules are changed, the option by default for these registrants will be less generous plans with higher premiums than other available plans.
Current automatic re-enrollment rules prioritize placing consumers on a plan with the same level of metal with the same insurer if possible. These rules, as we saw in 2018, will place hundreds of thousands of people in dominated plans for the 2022 plan year. People earning less than 150% of poverty who buy bronze or gold plans will have a less generous coverage and higher premiums than if they signed up for a CSR money plan.
Those with incomes between 150% and 200% poverty might face a similar problem, as households in that income bracket might have access to a more generous plan from their current insurer with the same or lower net premium. .
CMS’s role in improving consumer choice
Fortunately, CMS has the power to fix this problem by changing the automatic re-enrollment rules. We describe how CMS could do this below.
Our proposed change would ensure that individuals and households would benefit by default from the highest metal level plan offered in their insurer’s network and priced at no more than the net premium of any other available option, including their current plan. If there is no plan that meets this criterion, CMS could continue to use its current rules whereby households default to the same plan they purchased for 2021. Our proposed change would displace many winning households. less than 150% poverty bronze-to-money plans with CSR benefits. Households with higher incomes would experience similar changes to their defaults, although increases in coverage generosity and premium reductions are less drastic, though still significant. These changes will improve the affordability of coverage for new registrants, financial protection against health care costs and access to health care.
CMS could further improve the experience and environment of choice for new marketplace consumers by changing the architecture of choice of the marketplace. Healthcare.gov could automatically exclude the display of strictly dominated plans or include alerts and require decision confirmation when a buyer makes an explicitly inferior choice. The Connecticut State Marketplace implemented these measures, which led to a notable decrease in the number of individuals earning less than 200% in poverty by choosing non-CSR plans. These and other measures could lead to lower premiums and less cost sharing for more people.
Buying insurance is a difficult experience. In 2021, on Healthcare.gov, over 70% of potential registrants had a choice of 25 or more plans; 50% of them had a choice of 50 or more plans. Improving defaults has been shown to lead to significant improvements in beneficiary outcomes in Medicare Part D. Changing the automatic enrollment logic for ACA marketplaces to significantly reduce the likelihood that consumers choose significantly lower plans will improve the usability of insurance and the functionality of marketplaces and help consumers make the most of the improved premium tax credits.
Drake and Anderson both received funding from the National Institute for Health Care Management in 2020 to conduct research on the zero premium plans described in this blog post. Rasmussen received funding from the Agency for Healthcare Research and Quality and the University of California, Los Angeles Graduate Division in 2019 and 2020 to conduct research examining consumer health insurance decision making described in This article.