Short Takes On News & Events

Study: One-Third Of Individual Plans Exceed Law’s Out-Of-Pocket Cap

By Julie Appleby

February 11th, 2013, 4:05 PM

Consumers who buy their own health insurance will see the total amount they could pay out of pocket for medical care capped starting next year, but some will likely pay higher premiums as a result.

That’s one conclusion that can be drawn from a new study showing more than one-third of health insurance plans currently offered to individual buyers exceed the federal health law’s maximum annual consumer spending cap.

Starting next year, the law sets a limit of  about $6,300 in out-of-pocket costs –  about double that for family coverage. The law also requires insurers to count the annual deductible – the amount consumers pay before insurance kicks in – toward that maximum, something that the study found many plans do not do.

Currently, when deductibles are included, 36 percent of policies offered to individuals on the private market exceed that limit, according to a study by HealthPocket, a private firm that analyzed government data on more than 9,700 policies.

Average out-of-pocket costs were highest in Vermont, at just over $10,000, according to the study, and would have been higher except researchers excluded from the study’s calculations a $100,000 deductible policy sold there. Other states where the average out-of-pocket cost exceeded the health law’s limit were Washington, Oregon, Florida, Alabama and Arizona. The study did not calculate how many people hold such policies, nor did it weigh the results by enrollment.

“There are about 15 states – spread around the U.S. — with average out-of-pocket costs above the Affordable Care Act’s standard,” said Kev Coleman, the Sunnyvale, Calif.-based firm’s head of research and data.  People in those states “will have some of the biggest protections of the cap, while in a lot of other states it will be less relevant because their average limits are within or below the ACA standards.”

Existing policyholders may be able to keep their current plans that fail to meet the new limit, but new policies will have to meet the standard, which could result in higher premiums for consumers who currently purchase a plan with a high deductible or other cost-sharing that keeps their premiums lower.

The study comes amid considerable speculation over what coverage will cost under the law’s wide range of new standards.  Insurers are preparing the policies now for enrollment late this year and awaiting some rules from the federal government before filing their premium and coverage information with the states.

America’s Health Insurance Plans, the industry lobby group, says the limit on out-of-pocket costs will affect consumers differently.

“Someone with a high deductible, catastrophic plan today will see a much larger increase in premium than someone who already has a comprehensive policy through an employer or a lower deductible plan on the individual market,” said AHIP spokesman Robert Zirkelbach. “We will move to a system with a minimum level of coverage that is much broader than people have today. People will have more comprehensive health coverage, but it will be more expensive.”

The study looked only at policies sold on the private market to individuals, who buy their own coverage because they don’t get it through their jobs. Consumers in the non-group market, as it is called, generally buy policies with higher deductibles and other costs than those offered to workers through job-based insurance.

In fact, only 2 percent of workers with job-based coverage had out-of-pocket maximums of more than $6,000 last year, according to an employer survey by the Kaiser Family Foundation (KHN is an editorially independent program of the foundation.)

While it has not done a recent survey, AHIP looked at out-of-pocket maximums among individual purchasers in 2009. That year, the average max for the most common type of health plan was $4,506.

In 2014, the federal law caps the maximum out of pocket cost, tying it to an amount equal to that allowed under health saving account-tied insurance, about $6,250 this year.

The health law’s cap on out-of-pocket costs is meant to shield consumers with medical problems from huge annual bills, policy analysts say. But it is also likely to raise premium costs.

“For people with considerable health care needs, it’s a huge benefit. But those young healthy people everyone wants to get in, it will be a big educational challenge in helping people understand that this coverage is important,” said Sabrina Corlette, research professor at Georgetown Health Policy Institute.

11 Responses to “Study: One-Third Of Individual Plans Exceed Law’s Out-Of-Pocket Cap”

  1. Tony says:

    Most insurance carreirs are going to have to adjust their portfolios. There has been multiple plans designs that were developed with higher out of pockets than $6,300. Most of these policies were sold online with price being the main selling point. These plan designs came from both Natioanl carriers and Local. The people that were purchasing these types of plans may qualifiy for exchange policies.

  2. Mr. HSA says:

    HSA-qualified health insurance plans have been offering this “true catastrophic protection” since they were first created in 2004. The ACA borrowed the limits from HSAs (see reference in the statute to the HSA section of the IRS Code). Under HSA plans,

  3. Mr. HSA says:

    Under HSA-qualified plans, ALL out-of-pocket expenses — including the deductible(s), copays, and coinsurance — must be applied towards satisfying the annual limits on out-of-pocket expenses. People don’t realize that their traditional insurance policies frequently don’t have out-of-pocket limits, or if they do they don’t apply all expenses towards the limits, as this study found. One specific part of coverage that often does not have limits is prescription drugs. Again, under HSA-qualified plans, the out-of-pocket limits apply to ALL medical expenses, including drugs, for benefits covered by the plan.

  4. dr walt says:

    Follow link in 2nd paragraph to get detail. For example:
    More than $1,000 above ACA out-of-pocket limit
    Vermont $10,013
    Washington $8,799
    Oregon $8,772
    Alabama $8,371
    Florida $8,006
    Arizona $7,396
    Delaware $7,091
    Texas $7,053
    Arkansas $6,951
    Montana $6,915
    Michigan $6,824
    Mississippi $6,783
    Georgia $6,750
    Idaho $6,483
    Minnesota $6,457
    California $5,845
    Rhode Island $5,758

  5. Michael Bertaut says:

    The real tragedy in this section of PPACA, is that every single individual who currently owns a policy with deductibles or max out of pockets over the limit was in a market where plans with limits that meet the new standards were available. Those individuals CHOSE their plan with those limits because that was the maximum amount of coverage they were willing to pay for, in other words, in economic terms, they were achieving the marginal coverage they could afford and selecting their own level of risk.

    Enter PPACA. Now the Fed has told these individuals that they are INCAPABLE of estimating or selecting their own level of risk, that they are not smart enough to make this decision on their own.

    Not only are they demanding carriers offer a lower risk (but higher cost) product, they are OUTLAWING the higher risk (but less costly) products.

    This will have a multiplier effect on premiums that goes far beyond the enhanced coverage would suggest, because behavioral economists have discovered something called INDUCED UTILIZATION that occurs as the out of pocket costs decline. Conditions that are not life-threatening, that an insured would have just lived with, are more likely to be treated (and more money spent) as cost sharing is reduced. This new utilization drives up premiums even faster.

    Welcome to the new world of insurance, where there are no Chevy’s and Fords, only Mercedes and Lexus for you to purchase.


  6. I agree with Michael – as an insurance broker AND a consumer, I believe you should be able to weigh risk against budget. I do. I don’t want to be forced to pay a high premium when I’m a basically healthy person. I’d rather put any extra $$ in my own bank account for a future emergency or crisis that may never occur, rather than giving my money to an insurance company ahead of time to fund other, sicker people’s care.

  7. mandy says:

    Who among us can guarantee that they or their family member will never need life saving healthcare? Can cancer strike newborns? Can you break a leg in a skying accident? Can you have a head-on collision in your automobile? Can an child without proper vaccines get polio or meningitis? Don’t serious accidents or illnesses happen to you or your family? If not, lucky you! You are among the few. Fact is, we will all need healthcare at some point in our lives. None of us gets a free pass. When you die, you need a doctor to sign your death certificate. Many times, healthcare involves very expensive treatments. Many times, you need to be admitted to a hospital for an acute condition. If you are so confident that you or your family will never use healthcare, then we should have a healthcare system that excludes you because you refuse to participate. Maybe a system that puts you on a nationally published opt-out list so that if you ever show up at a hospital, you immediately get turned away. If we can’t have a system that mandates the purchase of good quality healthcare insurance with minimum standards, such as what we see with Romneycare or Obamacare or what was originally proposed by the ultra-conservative right-wing Heritage Foundation some 20 years ago, then hospitals should not be mandated to treat everyone that walks through the emergency room door. If you can say no, then hospitals should be allowed to say no too.

  8. John says:

    Wow! So, I am perfectly willing and able to absorb higher deductibles, co-pays and higher out-of-pocket limits, and in exchange, I pay lower premiums? And, now the genius’ in the Federal Government are taking this choice away from me?

    How is this better for people like me?

  9. David Lawrance says:

    For someone with a high-deductible, high coninsurance (bronze,) high copay plan, the cost of providing a lower annual out-of-pocket should be next to nothing. It might even be nothing.

    The benefit to someone with such a plan is that potentially less money comes out of the HSA, more rolls over, and investment income is better preserved.

    The financial benefit to society is that a lower annual out-of-pocket helps to offset loss of income occuring during periods of underemployment caused by illness. The choices families make in such circumstances have consequences for the rest of us as we pick up their bills. The social health benefit is that famillies are more likely to seek necessary care.

  10. Joe says:

    I think it is important to realize that many insurance providers need to change their plans. It is also interesting to see how the state based exchanges will affect issues such as the aforementioned.

  11. mandy says:

    The Republican plan…

    Don’t get sick! However, if you do get sick, die early!

    Sound familiar?