Some Lower-Cost Plans Carry Steep Deductibles, Posing Financial Challenge
As enrollment picks up on the HealthCare.gov website, many people with modest incomes are encountering a troubling element of the federal health law: deductibles so steep they may not be able to afford the portion of medical expenses that insurance doesn't cover.
The average individual deductible for what is called a bronze plan on the exchange—the lowest-priced coverage—is $5,081 a year, according to a new report on insurance offerings in 34 of the 36 states that rely on the federally run online marketplace.
That is 42% higher than the average deductible of $3,589 for an individually purchased plan in 2013 before much of the federal law took effect, according to HealthPocket Inc., a company that compares health-insurance plans for consumers. A deductible is the annual amount people must spend on health care before their insurer starts making payments.
The health law makes tax credits available to help cover insurance premiums for people with annual income up to four times the poverty level, or $45,960 for an individual. In addition, "cost-sharing" subsidies to help pay deductibles are available to people who earn up to 2.5 times the poverty level, or about $28,725 for an individual, in the exchange's silver policies.
As enrollment picks up on HealthCare.gov, many people with modest incomes are encountering a troubling element: deductibles so steep they may not be able to afford the portion of medical expenses that insurance doesn't cover. Christopher Weaver discusses. Photo: Getty Images.
But those limits will leave hundreds of thousands or more people with a difficult trade-off: They can pay significantly higher premiums for the exchange's silver, gold and platinum policies, which have lower deductibles, or gamble they won't need much health care and choose a cheaper bronze plan. Moreover, the cost-sharing subsidies for deductibles don't apply to the bronze policies.
That means some sick or injured people may avoid treatment so they don't rack up high bills their insurance won't cover, according to consumer activists, insurance brokers and public-policy analysts—subverting one of the health law's goals, which is to ensure more people receive needed health care. Hospitals, meantime, are bracing for a rise in unpaid bills from bronze-plan policyholders, said industry officials and public-policy analysts.
Because all health plans now are required to provide certain minimum benefits, "consumers may be tempted to shop on premium alone, not realizing that the out-of-pocket costs can have a dramatic effect upon the annual costs of health care," said Kevin Coleman, head of research and data at HealthPocket.
Mr. Coleman said he expects the high deductibles will "produce some reduction in medical-service use" for enrollees who don't qualify for subsidies.
Of course, millions of Americans who went without insurance before the health law are in better shape today, despite the high deductibles. They are covered for much of the cost of expensive health care such as cancer treatment or major operations that could be a financial catastrophe for people lacking insurance.
And deductibles had been growing for years. It is unclear how much deductibles would have risen for individually purchased policies if the health law didn't exist. But deductibles for employer-sponsored plans, which generally are much lower than for individually purchased policies, nearly doubled over the past seven years to $1,135 in 2013, according to a Deloitte study published this year.
Meantime, hospitals likely will be treating more people who have insurance than before the law, which means they will be paid by insurers for some services that formerly ended up as bad patient debt.
Federal health officials emphasize that the exchange's pricing tiers accommodate people's different situations, and give consumers better coverage of essential services including doctor visits for preventive care that are exempt from deductibles.
"In the current individual marketplace, consumers can face unlimited out-of-pocket expenses for plans with limited benefits and high deductibles, if they can even get coverage without being denied for a pre-existing condition," said Health and Human Services Department spokeswoman Joanne Peters. "In the new marketplace, out-of-pocket expenses are capped, there are no denials based on your health and you can compare plans to find one that meets your needs."
Total out-of-pocket expenses under bronze plans are capped at an annual $6,350 for individuals and $12,700 for families of four; some older policies left consumers liable for significantly more. These totals include all deductibles, copayments and coinsurance charges for covered medical services from in-network health-care providers.
The issue of deductibles is coming into sharper focus as more people enroll thanks to improvements to the HealthCare.gov website since its botched Oct. 1 rollout. An uptick in traffic at the site and new data from states that are operating their own exchanges indicate that enrollment is picking up, although federal officials haven't released specific enrollment numbers. President Barack Obama has endured an uproar over the cancellation of millions of individual-insurance policies after he promised repeatedly that people who liked their coverage could keep it. Many policyholders whose old plans were canceled because they don't meet the coverage standards of the health law are facing higher prices in the exchanges.
"They're seeing sticker shock" in transitioning to the more-comprehensive coverage, and "once they start to use the policy, they will see a second sticker shock" of high deductibles, said Jamie Court, president of public-interest group Consumer Watchdog in California.
For example, the patient's typical share of the cost of having a baby through normal delivery—$6,150, according to one insurer's estimate—would be almost entirely an out-of-pocket expense for a person holding a bronze policy with the average $5,081 deductible.
"The anger is going to grow, because people are really stretched to buy these policies, then they're going to have to reach into their pocket for another five grand before it does anything for them," Mr. Court said.
Gary Claxton, who co-directs a program for the study of health reform and private insurance at the nonpartisan Kaiser Family Foundation, said the bronze plans' high deductibles represent "a difficult part of the law." The amount "is certainly a lot for some," though for some early retirees with modest income but ample savings "it's probably a better choice."
Larry Harrison, an insurance agent in Las Vegas, said he constantly is reminding people to look beyond the premium when shopping for coverage. Older or sicker people who expect to be heavy medical-care users typically pick plans that cost more but have lower deductibles than bronze plans, he said.
On the other hand, many young and healthy consumers say, " 'OK, it's the law. I'll have to buy a plan,' and they go straight to the premium price," he said. "If something happens to them, they just tell me they'll deal with that [deductible] another day."
For a 40-year-old adult, the average monthly premium for a bronze plan is $295.51 a month, or $3,546 a year, according to HealthPocket. A typical silver plan costs $319.42 a month, or $3,833 a year, with a $2,907 deductible.
The average insured American spent $1,241 on out-of-pocket health-care expenses in 2012, according to Truven Health Analytics Inc., which analyzed medical claims from employers.
Moody's Investors Service in October cited several exchange-related risks that it said would pressure nonprofit hospitals' revenue in 2014, including growth in unpaid bills associated with the higher deductibles.
The American Hospital Association, which represents for-profit and nonprofit hospitals and other health-care providers, concurred that the higher deductibles "will likely lead to an increase in hospital bad debt," said Ashley Thompson, its deputy director for policy.
It isn't known how many bronze policies have been bought so far because the exchanges aren't releasing that level of detail, HealthPocket's Mr. Coleman said.