What If I'm Planning To Be Very, Very Sick Indeed?

Last time, I discussed the fact that those with mild health concerns need to be very careful, and to be willing to flex their amateur actuary muscles, when selecting an ACA-compliant insurance plan.

For the seriously, chronically ill, it seemed like the decisions should be much simpler. Because all insurance plans must now provide a maximum out-of-pocket (MOOP) cap of no more than $6350, it seemed obvious that the lowest-premium plans were likely to be the best option for people who knew as sure as the sun would rise in the east that they would be on the hook for tens of thousands of dollars (or more) in medical expenses on an annual basis.

A financial planner posted a few months ago with a similar assumption—that both the healthiest and the sickest would probably do best choosing bronze plans. The healthy won't need services anyway, and the sickest will quickly hit the statutory $6350 (MOOP) and be protected thereafter. It was a reasonable assertion. Turns out it's not nearly so simple.

As mentioned yesterday, Unity UW Health Bronze C is the lowest-cost plan in my home county. Someone my age will pay $172/mo, or $2064 for a full year of coverage. (Actually, because premiums rise with every birthday on ACA plans, this annual number would be slightly higher, but this serves well enough as an illustration.) This plan has the statutory $6350 out-of-pocket limit on combined medical and prescription charges, so the most anyone can expect to pay for medical services on this plan would be:

($172 x 12) + $6350 = $8414

“Not bad,” I said to myself. One can consume tens—nay, even hundreds—of thousands of dollars in medical services in 2014 and pay just $8414 for the privilege. I assumed this would be the cheapest route to victory for the very ill, because this plan's rather miserly $5400 deductible and lack of copay protection forces the healthy and those with mild-to-moderate health problems to take on so much financial risk. “Surely,” I said to myself, “this would be the cheapest way to obtain catastrophic coverage. Unity will cover their losses on the very ill with the premiums of those who never get out of the deductible.”

Then, on a lark, I decided to scroll down to the most expensive plan offered by Unity: Unity UW Health Platinum B w/Dental. And what I saw floored me.

For $437/mo, one gets:

$0 deductible

$1000 MOOP medical

$1000 MOOP prescription

$10 PCP visits

$50 specialty visits

$60 ER visits

Oh my, oh my, oh my. Now, suddenly our very sick person is doing rather better indeed (at least, financially):

($437 x 12) + $1000 [prescriptions] + $1000 [medical] = $7244

Our ailing friend is actually spending $1170 less than they would have on the cheapest, higher-risk plan. (And they get adult dental coverage as well, which is not easy to come by.)

Why is this? I have narrowed it down to two distinct possibilities:

1. Unity is counting on a lot of comparatively healthy people over-insuring themselves by selecting this platinum plan, then consuming far less in services than they pay out in premiums ($5244/year, in this case.) Those over-insured people will subsidize the more tragic cases.

2. Unity has made a terrible mistake.

Mind you, it turns out that under ACA, insurers are backstopped by the feds against really huge patient outlays, and that deal has been sweetened recently. But they're still on the hook for quite a lot of money when insuring the very sick. That's why I can't rule out option #2. Insurance is about risk, and risk is about making educated guesses, but ACA rules have significantly changed the risk profiles out there. It's a new world and mistakes will be made.

There are some even more interesting corner cases in which digging deeply into the details of ACA plans can save you a lot of money if you know you're going to be a costly patient. Let's say you have an expensive, chronic condition which is primarily managed through expensive pharmaceuticals. We'll illustrate with multiple sclerosis, which is often treated by a combination of a pill to combat fatigue, and a self-administered injection to combat the immune system's various malfunctions. The cash prices of these medications easily run into five figures per year, but you can do far, far better than that and come nowhere near paying out the $6350 statutory limit by locating a plan which separates the pharmaceutical maximum out-of-pocket from the medical MOOP.

Our friend from yesterday, Unity UW Health Silver E, does exactly that. With just a $950 prescription expense OOP max and a $3012 annual premium, one can have their expensive medication needs met for less than $4000—thousands of dollars better than they would have done on either the Bronze C or Platinum B plans! (And still get in the occasional neurologist visit for $110/session.) And that plan has a rather substantial $200 copay for specialty drugs, which the injections are considered to be. More aggressive searching might reveal a plan with a better combination of specialty drug copay and/or prescription MOOP. Might this be another major miscalculation on the part of the actuarial team?

Far from being able to put their decision on autopilot, as it turns out the chronically ill are also well-motivated to be vigilant shoppers—at least, if they're actually on the hook for their own premiums, copays, and coinsurance. The heavily subsidized have less financial incentive to distinguish between plans. They are also more likely to be loyal to a particular network of doctors, clinics, and hospitals if they feel their conditions are under the best control. These factors may also have gone into the analysis done by the professional actuaries at each insurer. Time will tell.

But for now, it turns out that everybody shopping for health insurance should set aside several quiet hours with a calculator, lest they leave a very large pile of cash on the table.

How Sick Do You Plan To Be?

As I've mentioned earlier, this exercise is only academic for me at the moment because I'll be able to keep my current, non-compliant policy until December 31, 2014. I'll be repeating the exercise next autumn, however, so this is good practice.

Because I have no known chronic health issues, I really only care about two things:

1. Minimizing my costs for occasional, acute conditions,

2. Protecting myself against calamity.

The ACA does a good job with part #2, giving everybody a $6350 out-of-pocket maximum (beyond premiums, that is.) So that frees me up to focus on minimizing my costs for occasional, acute conditions. With dozens of plans to choose from and no helpful Medicare Part D-style calculator to analyze costs, people are on their own to figure out the best deal for their situation. We must play a fun game of “How Sick Do You Plan To Be?”

I do occasionally require some medical attention. In 2013, I've made two non-preventative visits to my PCP, which is typical enough. The most recent was a brief trip because of a lingering cough, for which I was prescribed a quick course of antibiotics. Under my current plan (which some consider “junk insurance”) I paid a $25 copay for the visit, plus $7 for the generic antibiotics. (I have a $10 generic Rx copay, but the cash price was less.)

Let's look at the underlying cost of that visit, which is a good exercise for everybody but is especially important in the post-ACA world:

Procedure	Charge Amount	Allowed Amount	Not Covered	Copay/ Coins/ Deduct	Paid	Reason Code
99214-EST, LEVEL IV OFFICE VISIT CPT(R)	254.00	225.92	0.00	25.00	200.92	3, 45

So, the office billed the insurance $254. The insurance company in turn scoffed and said “That was only worth $225.92, nice try.” I chipped in $25, the insurance picked up the remaining $200.92. (And, as noted, I paid 100% of the cost of the antibiotics.)

This is relevant because in many markets, including my home, the lowest-cost ACA plans will not cover any services until the deductible is met—not even providing this type of copay protection for perfunctory office visits. And this phenomenon is not limited just to “bronze” plans—there are a few higher-tier plans with similar limitations. Typically, but not necessarily, these plans are linked to HSAs.

With this in mind, our search becomes fairly straightforward. If I'm paying full fare out-of-pocket until I reach my deductible, I can expect to pay about $225 every time I have to see my PCP. (Charges will doubtless vary a bit from HMO to HMO, but with four of them operating in my county, let's assume a relatively competitive marketplace in which that figure won't be off by more than 10% or so.)

The lowest-cost plan available to me in 2014 would be Unity UW Health Bronze C, at $172/mo. With a $5400 deductible and a $6350 max out-of-pocket, there's not a lot to love about it, but it definitely does job #2: if a piano falls on me and I'm hospitalized for weeks, I won't pay more than $6350 to have my body repaired. I pay the full amount for all services until the deductible is reached, and then in that narrow window between $5400 and $6350 I pay 50% coinsurance.

One has to browse quite a way down the list in order to find the first plan which provides bona fide copay protection: Unity UW Health Silver E. For $251/mo, one gets $35 primary care, $110 specialist care and $300 ER visits. There's a $4300 deductible and a $5400 max out-of-pocket, plus separate $950 drug max out-of-pocket bringing us to the magic $6350. But for the occasional nasty cough or sore throat, I'm not worried about those. I only care about the $35 PCP charge.

Let's review annual costs.

The cheapest, bare-bones ACA plan (Unity Bronze C) would cost me $172 x 12 = $2064.

The cheapest copay ACA plan (Unity Silver E) costs $251 x 12 = $3012.

I save $948 in 2014 by buying the cheapest plan. But on the cheapest plan, a plain-jane PCP trip will run $225. On the nicer plan, I'll pay merely $35.

So from here, it's just a matter of playing with the numbers to see how many PCP visits it would take in order to tilt the balance in favor of Unity Silver E... and it turns out that number is five.

Unity Bronze C: $2064 + (5 x $225) = $3189

Unity Silver E: $3012 + (5 x $35) = $3187

Could I need five PCP visits in a single year? It's certainly plausible, although it's never happened to me before. (That's excluding a basic physical, mind you, which are zero-copay even on the cheapest, barest-of-the-bare-bones plans now.) If I expect 2014 to be like 2013 and I have just two non-preventative office visits, I save hundreds of dollars on Unity Bronze C.

There's another wildcard in my decision matrix here, which is that having been in the UW Health network for years in the past, I can't say I was terribly impressed by access to my PCP, who often could only make appointments several months away. So I may not actually be able to see my PCP in a reasonable amount of time for a cough—and if I go to urgent care, that's considered a $110 specialist trip, skewing the math considerably. It's difficult to predict exactly what's going to happen to the demand for a particular HMO's services in the upcoming year, although as the low-cost leader, I expect UW Health patient base will be growing, not shrinking.

I could also further complicate the math if I chose to pay for my PCP visits in Unity Bronze C out of an HSA, because then I could consider those visits paid for with untaxed income. That would probably shift the breakpoint out to a sixth PCP trip.

And, of course, even one lousy trip to the ER could well shift the balance in favor of Unity Silver E, since racking up far more than $300 in charges is easy to do in that setting. And if I planned to see some specialists, I'd likely be looking at a completely different set of plans. But controlling for unknowns is a full-time job, after all. The kind of thing insurance companies want to be compensated for doing. (Except when their profits are capped, that is.)

The ACA has done a lot of valuable things. But it certainly hasn't freed individual insurance buyers from the tricky responsibility of predicting how sick they'll be.