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.