Cancelled coverage as hardship

The Obama administration announced yesterday that persons who had coverage cancelled because it didn’t meet the ACA’s coverage requirements, are eligible for a hardship waiver that would let them either not be subject to the $95 or 1% of modified Adjusted Gross Income penalty, or be eligible to buy into catastrophic plans sold on exchanges. The administration claims there are 500,000 persons in this situation; I am unsure of the number. Catastrophic plans were designed (and risk rated) for persons age 30 and under, and those with financial hardships.  The Sec of HHS seems to have a great deal of discretion in determining what is a hardship.

Most of the policy action here is in allowing persons above age 30 to buy into a risk pool whose premiums were set imagining a younger clientele; those with cancelled plans want health insurance, and either haven’t been able to sign up yet, due to website problems of healthcare.gov or even their state exchange, or they want to pay a premium that is more similar to what they had before.

I further assume that the subset of those with cancelled policies who are most at risk of moving from insured to uninsured are those with incomes above 400% of poverty, meaning they now have to purchase a more expansive benefit package than they previously had, but they make too much money to quality for a subsidy. In spite of four years of debate, the question “how much subsidy should each person get for their health insurance?” has not been fully addressed. (and my estimate of the subsidy of ESI may be under-estimated).

As the table below shows, very different amounts of governmental subsidy flow to different persons, based on their income and age. What the table doesn’t make clear is that the mean subsidy of $5,510 for those purchasing in the exchange includes those above 400% of poverty who do not quality for any income based subsidy. Those with cancelled plans above 400% of poverty are the most likely to purchase catastrophic plans, I would guess. I suggested in late October a deal that would replace the individual mandate long term with auto enroll provisions from Paul Ryan’s Patients’ Choice Act, plus an immediate tax change to allow individuals above 400% of poverty to deduct their premium from income, thus giving them some subsidy, while hopefully catalyzing some reasonable debate (stop laughing) about whether the table below is what is best.

ScreenHunter_02 Nov. 16 11.16

Allowing catastrophic plans priced for those in their 20s to be purchased by those with cancelled plans who are older mean that the subset whose income is to high to get a subsidy will now get something. To estimate how much, I used BCBS NC’s web site, where there are 6 Bronze plans for sale in my zip code for a 60 year old man with income of $50,000; premiums range from $475.06-$564.21/month. By comparison, a 28 year old in my zip code with income $50,000 has two catastrophic plans to pick from ($149.32 and $164.09/month; also with no subsidy). If the 60 year old had a policy that was cancelled, he can now purchase one of these catastrophic plans as I understand the new ruling. That provides him with ~ $325/month of implicit subsidy if you compare the cheapest bronze he could buy with no subsidy, to the cheapest catastrophic plan available in zip code 27705.

A few final thoughts:

  • only those with cancelled coverage get this option via hardship. This seems mostly designed to address the especially pernicious political problem of moving some (relatively small) number of people from the ranks of the insured, to the uninsured. It doesn’t address the uninsured above 400% of poverty who may be balking at the premiums.
  • what will this do to the state-based risk pools? Not sure. Adrianna McIntyre is not so worried about death spiral. The answer will almost certainly differ by state, which has always been the case.
  • a health reform deal is at some point is inevitable. I thought that in December 2010, and still think so and wrote an entire book framing the addressing of the nation’s long term fiscal picture around a health reform deal. It has to happen, though I am unsure when the politics will align to allow it

Update 10:45pm, 12/20/13: First, I talked by phone with a top BCBS NC official and they are reviewing the guidance they have received about the hardship for those with cancelled policies issue. They are unsure if premiums may be adjusted for age above age 30. I will update again if I get more information. Second, BCBS NC decided to renew many previously cancelled policies per the November, 2013 policy change. I think this means that there will be relatively few persons in N.C. who will qualify for this hardship waiver, and I would think that only those with incomes above 400% of poverty would be likely to consider catastrophic policies, because those with lower incomes would get subsidies for a Bronze plan or greater on the exchange.

update: revised for clarity

About Don Taylor
Professor of Public Policy at Duke University (with appointments in Business, Nursing, Community and Family Medicine, and the Duke Clinical Research Institute). I am one of the founding faculty of the Margolis Center for Health Policy, and currently serve as Chair of Duke's University Priorities Committee (UPC). My research focuses on improving care for persons who are dying, and I am co-PI of a CMMI award in Community Based Palliative Care. I teach both undergrads and grad students at Duke. On twitter @donaldhtaylorjr

5 Responses to Cancelled coverage as hardship

  1. Allison Rice says:

    I take your point about the subsidy our 60 year old will now be getting by virtue of being able to buy the catastrophic plan. Having looked at these plans quite closely, I would say that given the choice between bronze and catastrophic, there probably wouldn’t be many for whom the bronze would be the better choice.

    But I am confused about your statement that there would be an implicit subsidy of around $325. You seem to be assuming that our 60-year-old would be getting the 28-year-old’s rate, but that wouldn’t be the case. The rating curve would still apply, and our 60-year-old is going to be paying more like $400/month for that catastrophic plan. (On the standard rating curve, age 60 pays 2.714 times the base rate (for a 21-24 year old.). (I’m assuming you’re using Durham rates, which is what I figured.)

    • Don Taylor says:

      I do assume that the catastrophic plan does not have age underwriting. I think that is true, but am not certain. Trying to verify. If it is not true and the cata plan has 3:1 age rating variation then the announcement is not particularly consequential in terms of the subsidy (those premiums are from my zip code in Durham). Note: when I go onto BCBS NC website, and enter age over 30 it will not show me that as an option.

      • Allison Rice says:

        You’re right about the BCBS website not displaying catastrophic for those over 30. I checked healthcare.gov and it doesn’t show it either.

        But the BCBS site does apply the age curve for the ages it does display. I checked for my zip in Durham and the Blue Advantage catastrophic plan is priced at $150.96 at age 21 and $168 at age 29. Since the ACA does permit those over 30 to purchase catastrophic if their costs would exceed 8% of income, it would make sense that age-rating would apply, even if the insurers were planning for a young risk pool.

        Also of interest, those age-rated catastrophic premiums show up in HHS’s State Marketplace Premium Databook (download here: http://aspe.hhs.gov/health/reports/2013/marketplacepremiums/datasheet_home.Cfm).

        Regardless of the age rating, though, I’m wondering how they’re going to do this through healthcare.gov’s already challenged enrollment system. How are they going to verify the hardship?…The more the administration tries to stick its fingers in the dyke, the more complications it creates.

  2. Don Taylor says:

    Allison
    It is a good point about hardship. Either could be age rating on up, or cooked hardship into these rates. Not sure. If I get more info from BCBS NC I will post it…

  3. Bob Hertz says:

    One thing I have noticed in health care debates is that words have images, and the images can be misleading.
    In this case, the words “400 per cent of poverty level” sounds like a description of an affluent person.
    In reality, a couple with pre tax income of $63,000 in a high tax state may not find an ACA plan very affordable at all. If their after tax income is $48,000 or $4000 month, then a health insurance premium of $1000 a month is 25% of their spendable income.

    I know this is easier to say than to do, but if the Obama administration had been devoted to the goal of tying health insurance premiums to income across the board, their plan would not be so unpopular.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: