ACA marketplace plans provide risk protection, but out-of-pocket costs can be misleading


Miami residents work with a UniVista Insurance company advisor as they sign up for the Affordable Care Act, also known as Obamacare on Feb. 5, 2015.
Photo credit: 
Joe Raedle/Getty Images

There is no denying the Affordable Care Act has significantly increased the number of Americans with health insurance. Yet many policymakers and consumers question the value of Marketplace plan coverage under the ACA because cost-sharing can get pretty high.

A survey by the Kaiser Family Foundation and The New York Times last year found that 22 percent of people who purchased health insurance through an ACA Marketplace plan had trouble paying their medical bills due to copayments, high deductibles, and co-insurance payments.

Out-of-pocket costs under a typical silver plan, for example, can be twice as high as they are in the average plan provided by employers.

So Stanford health policy researchers conducted a study, published online in Health Affairs, in which they simulated out-of-pocket spending for bronze, silver and gold Marketplace plans — those having actuarial values of 60 percent, 70 percent and 80 percent, respectively.

They found that while Marketplace plans significantly reduce exposure to the financial risk of a catastrophic illness, the use of actuarial values can be misleading. For the vast majority of consumers, the proportion of covered spending is likely to be far less than their actuarial values.

“Many Americans may find themselves not using their health insurance plan in a given year because they didn't get sick,” said Maria Polyakova, an assistant professor of health research and policy at Stanford Medicine and lead author of the paper.

In fact, only when annual health-care spending exceeds $16,500 for bronze plans, $19,500 for silver plans, and $21,500 for gold plans do plans in these metal tiers cover the proportion of costs matching their actuarial values. These metal levels are intended to provide standardized information on coverage generosity to help consumers choose among plans.

Marketplace plans provide relatively comprehensive coverage for the small proportion of people who experience extremely high health-care spending, the authors wrote. But the vast majority of enrollees experience relatively little direct benefit from their coverage in any given year because most of their services out of pocket because their expenses fall below the deductible limits.

But Polyakova, who is also a faculty research fellow at the National Bureau of Economic Research, said it’s important not to conclude that purchasing health insurance is a waste of money for the young and healthy.

“Indeed, most working-age adults do not use much health care,” she said. “The idea of health insurance, however, is to protect household finances in those cases when someone does get sick and needs expensive care. In this paper, we find that for many consumers, Marketplace plans are likely to provide valuable risk protection.”

The mismatch between expected and experienced coverage for the majority of people who have low health-care expenditures is one factor that may have inhibited enrollment in Marketplace plans among relatively healthy people, the authors wrote, a phenomenon that could have contributed to Marketplace instability.

“More generally, a weakness of using actuarial value is that doing so distracts consumers from the key purpose of insurance, which is financial risk protection,” said Polyakova and co-author Kate Bundorf, an associate professor of health research and policy and chief of the Division of Health Services Research at the Stanford School of Medicine.

“Policymakers should consider alternative ways of communicating plan generosity that more accurately convey to consumers their likely out-of-pocket spending in a plan and how much risk protection plans provide,” they wrote. “Moreover, it may be important and valuable to emphasize the risk protection value of plans in the public debate.”

One fairly easy fix, Polyakova said, would be for to show consumers their expected spending under different “sick” and “healthy” scenarios. Currently, the health site asks consumers whether they expect to be sick or healthy and then shows which out-of-pocket costs would result. But it doesn't show people who expect to be healthy what would happen to their spending if they did get sick.