Feb 11, 2015 | Gary Claxton, Cynthia Cox, and Matthew Rae
MARCH 13, 2015 – Private insurance plans typically require some form of cost sharing (also called out-of-pocket costs) when enrollees receive a health care service covered by their plan. These expenses, which are in addition to the amount an enrollee spends on his or her monthly premium, come in a variety of forms:
- Copayments: set dollar amounts for covered services (e.g. $20 per general physician visit);
- Coinsurance: a percentage of the allowed cost covered services (e.g. 20% of the allowed cost for a specialist visit);
- Deductibles: set dollar amounts that enrollees must pay before their plan starts to cover the service or a group of services (e.g. $200 drug deductible before drug coverage begins);
- And, often, some combination thereof.
Insurers use cost sharing to keep down monthly premiums in a couple of ways. First, cost sharing can directly offset premiums by transferring some of the overall costs from monthly payments to payments at the time medical care is used. A second way cost sharing has a downward effect on premiums is by decreasing the amount of health care enrollees use: when a charge is required at the point of care, people tend to utilize fewer services.
Cost sharing can also lead to unexpected costs for some enrollees and can be difficult to decipher when shopping for plans or reviewing medical bills. Although the Affordable Care Act (ACA) requires significantly greater standardization and transparency for individual market coverage than existed before the law went into effect, the answer to the main question on many enrollees’ minds – ‘How much will I spend on health care?’ – is not always straightforward.
This brief shows the cost sharing in plans sold to individuals through Healthcare.gov, with a focus on the variation in the ways plans may set cost sharing for services, such as physician visits, prescription drugs, and hospital stays.
Changes to Cost-Sharing under the Affordable Care Act
The ACA requires new private plans sold to individuals to standardize their coverage and the information they provide to enrollees in a variety of ways:
- New plans (both on and off of the Marketplace) must cover at least a basic set of services called Essential Health Benefits (though cost sharing may apply to these services, this provision helps limit out-of-pocket costs by ensuring that a minimum set of services are covered).
- Certain preventive services, such flu shots and mammograms, must be covered without cost sharing.
- The ACA also sets out-of-pocket limits (which are caps on the amount of annual cost sharing that enrollees may be charged for covered services that are received from in-network providers). In addition, the law does away with annual limits on coverage a plan may pay out.
- New plans are now standardized into “metal” tiers – bronze, silver, gold, and platinum – ranging from most to least potential exposure to out-of-pocket costs. The metal tiers are based on a concept called actuarial value, which is the percent of total costs for all enrollees’ covered services that are paid for by the insurer, on average, as opposed to those costs paid for by enrollees. For example, a bronze plan has an actuarial value of approximately 60%, meaning that the insurer expects to pay for 60% of total costs associated with covered medical services, and that – as a group – the enrollees would pay for the remaining 40% of total costs through their combined copayments, coinsurance, and deductibles.
- Cost-sharing reductions are available to low-to-moderate income Marketplace enrollees. These cost-sharing subsidies, unlike the more widely known premium tax credit, are only available to people who have incomes between 100 and 250 percent of poverty, and who enroll in a silver plan through the Marketplace. The subsidies work by increasing the actuarial value of a silver plan to be 73, 87, or 94 percent, depending on income. For the lower-income recipients of these subsidies, their out-of-pocket maximums for silver plans will resemble those of gold or platinum plans. (Although the ACA originally called for out-of-pocket maximums to be lowered for enrollees with incomes between 250 and 400 percent of poverty, this was unable to be achieved in combination with the prescribed actuarial value requirements and was changed during the regulatory process.)
An important note is that each of these changes to cost sharing from the ACA, including the calculation of actuarial value, only applies to services offered by in-network providers. Insurers may require enrollees to pay significantly more for out-of-network providers, and plans are not required to offer a cap on expenses enrollees may incur for out-of-network care. Some plans offered on the marketplaces may have limited networks, which only include a limited number of hospitals or physicians in the network.
The ACA requires insurers to make publically available a consumer-friendly, standardized document called a Uniform Summary of Benefits and Coverage (SBC). The SBC summarizes each product’s required cost sharing for in-network and out-of-network services, and is intended to be standardized in a way that allows people shopping for a plan to make “apples-to-apples” comparisons.
Cost-Sharing in Marketplace Plans
Even with this move toward standardization, Marketplace plans still vary quite a bit. Plans offered in the same state and within the same metal level may have very different cost-sharing structures. This is in part because there are many ways plans can set cost sharing and still achieve a given actuarial value.
A silver level plan in Pennsylvania has a $4,500 deductible, $10 copays for physician visits and no cost-sharing after the deductible for inpatient care.
Another plan in Pennsylvania has no deductible but a $50 copay for physician visits and a 50% coinsurance for inpatient care.
Both plans have an actuarial value of approximately 70%, but the same person may fair very differently in one plan than the other, depending on his or her health care needs in a given year.
This analysis looks at the variation in Marketplace products offered in 2015 within and across metal levels. As the source of the data is Healthcare.gov, this analysis is limited to plans sold to individuals in the 37 states with a federally facilitated or partnership Marketplace (including New Mexico, Oregon and Nevada). The data were de-duplicated so that each unique product was only counted once per state, and we excluded child-only and catastrophic plans. (Catastrophic plans are essentially identical in their cost-sharing structures). We do not include cost-sharing reduction plans in this analysis; we will be looking at those plans in a separate brief.
The analysis relies on data downloaded through Healthcare.gov. In the course of doing this analysis, we found instances where the summary descriptions of cost sharing did not necessarily match information in the plan brochures and SBCs. We did not attempt to verify each description and did not alter any of the information from the downloaded file, which means that some of the plans may be misclassified for certain cost sharing provisions.
Aside from the premium, deductibles are one of the main features that consumers look to when shopping for a health plan. The majority of bronze plans and many silver plans have what are called “combined” deductibles, meaning that there is a single deductible for both medical services and prescription drugs. The plan typically will not begin covering most medical or prescription services until the deductible has been met (though many health plans do not apply the deductible toward certain services).