60% Of Health Plans Are Illegal

According to Obamacare’s regulations, a health plan must pay at least 60 percent of the actuarial value (AV) of its costs. That means that if the cost of your health care for a year is expected to be $8,000, a plan which pays 60 percent (called a bronze plan in Obamacare), will cover $4,800 of the costs. You’ll be expected to pay $3,200 in deductibles and co-payments.

Our colleague Linda Gorman defines AV as “the average amount a plan with a given set of benefits is likely to pay given a standard population.” I’ve also discussed that because Obamacare’s regulations define AV relative to a “standard population” health insurers can design plans that cause the sick to have extremely high out-of-pocket costs.

Professor Bob Graboyes, in the compelling and entertaining video presented below, explains another big problem with Obamacare’s AV regulations: They outlaw 40 percent of possible AVs above the 60 percent minimum. That is because the AVs defined as floors in the law for the four “metallic” plans (60 percent for bronze, 70 percent for silver, 80 percent for gold, and 90 percent for platinum), are interpreted in regulations as narrow corridors of 4 percentage points.


That is, a bronze plan can cover 58 percent to 62 percent of costs, but not 63 percent. So there is a gap between 62 percent to 68 percent AV (and 72 percent to 78 percent, and 82 percent to 88 percent, and above 92 percent) in which it is illegal for an insurer to offer a plan.

The actual regulation (much less interesting than Professor Graboyes) justifies itself thus:

The proposed de minimis variation of +/- 2 percentage points gives issuers the flexibility to set cost sharing rates that are simple and competitive while ensuring consumers can easily compare plans of similar generosity. This approach strikes a balance between ensuring comparability of plans within each metal level and allowing plans the flexibility to use convenient cost-sharing metrics. The de minimis range also mitigates the need for annual plan redesign, allowing plans to retain the same plan design year to year and remain at the same metal level.

Professor Graboyes suggests that it is more difficult to change plan design than the regulation does, anticipating that as plans roll from 2014 to 2015, their AV’s will spill outside the bands and the plans will be cancelled. The Administration claims to have minimized this problem with a rule allowing “uniform modification of coverage“. So, we will see whether this solves the problem.

The real question is: Why are insurers not allowed to offer plans at whatever AV they and their beneficiaries prefer?

– See more at: http://healthblog.ncpa.org/60-percent-of-health-plans-that-could-meet-obamacares-essential-health-benefits-are-illegal/#sthash.3Po2ooKA.dpuf