Summary

To better understand how the Affordable Care Act (ACA) may have affected price / value relationships in the market for individually purchased coverage, we’ve compared premiums (by age), deductibles, and out-of-pocket limits for plans offered in 2013 and 2014 in the seven states[1] that presently contain more than half of the nation’s uninsured adults

Specifically, we evaluated premiums, deductibles, out-of-pocket maxima, metal tier, and plan type (e.g. HMO v. PPO v. EPO, etc.) for all[2] single-coverage plans offered for purchase to males of four ages (21, 40, 60, and 64) in these states’ 2013 and 2014 markets for individually-purchased coverage. Across these seven states we analyzed nearly 2,000 plans offered in 2013, and nearly 1,200 offered in 2014

We found:

1. The average cost of plans offered has increased in 2014 v. 2013. In addition to medical inflation, average costs appear to have increased for two additional reasons: a) the cheapest plans on offer in 2013 are unavailable in 2014; and, the average scope of products and services covered likely has expanded because of minimum essential benefit provisions taking effect in 2014

1. For a given level of coverage (defined as a given deductible and/or out-of-pocket maximum), average premiums in 2014 are substantially higher than in 2013. For example, in 2013 the average deductible for plans purchased by 21 year olds was $3,649, and the average premium was $144. To purchase a plan with the same deductible in 2014, a 21 year old would have to pay $261, an increase of 81 pct

1. Rising premiums (for a given level of coverage) impact the young more than the old. Where maintaining a constant deductible year on year costs 21 year olds 81 pct more in 2014, it would cost a 40 year old 29 pct more ($309 v. $240 for a $4,045 deductible) and a 64 year old 64 pct more ($806 v. $491 for a $3,494 deductible)

1. Not everyone below 400FPL will receive a subsidy. Subsidies are geared to keep the 2^nd cheapest Silver plan below a given level of income for persons at or below 400FPL, and the percent of income threshold is lower at lower incomes, and vice versa. Based on 2014 Silver plan prices, 21 year olds with incomes above 300FPL are unlikely to receive subsidies, and the same is true for 40 year olds with incomes above roughly 350FPL

1. At certain ages and incomes, subsidies will be large enough to offset the higher cost of a given level of coverage (defined as the same deductible in both 2013 and 2014). Above these income thresholds, coverage is (potentially much) more expensive. For 21 year olds with incomes at or below roughly 200FPL, a given level of deductible is more affordable in 2014 than in 2013. For 40 year olds with incomes at or below roughly 300FPL, a given level of deductible is more affordable in 2014 than in 2013. For 64 year olds with incomes at or below roughly 400FPL, a given level of deductible is more affordable in 2014 than in 2013

1. Plans types offered in the market for individually purchased coverage become substantially more restrictive on average in 2014. In 2013, the more restrictive plan types (HMOs and EPOs) made up only 19 pct of the plans on offer; in 2014 HMOs and EPOs make up 61 pct of plans offered

For some persons receiving subsidies, a given amount of ‘insurance value’ has become more affordable in 2014, and logic suggests that a higher percentage of these persons will be insured in 2014 than in 2013. Conversely, for everyone not receiving a subsidy, and for many who are eligible to receive a subsidy, a given amount of ‘insurance value’ has become less affordable in 2014 than in 2013, and it follows that a higher percentage of these persons will be un-insured in 2014 than in 2013

The facts that premiums for a given amount of coverage have inflated the most for the young, and that younger persons are relatively less likely to receive subsidies, argues that the 2014 market is less likely to attract younger (healthier) beneficiaries than it is to attract older (less healthy) beneficiaries

Details

The average 2014 plan is more expensive, in part because the ‘low-end’ of the market is gone – i.e. the very cheap plans offered in 2013 are not available in 2014

Premiums (before subsidies) generally are higher in 2014 than in 2013, particularly for younger participants. In Exhibit 1 we group plans on offer in either year into low, medium, and high categories according to premiums, and provide average premiums, deductibles, and out-of-pocket maxima for plans falling into each category

Note that the average price of plans in the lowest quartile has roughly doubled for all age groups; this reflects the fact that the cheapest plans on offer in 2013 simply are not on offer in 2014, presumably because these cheaper plans failed to meet the minimum standards taking effect in 2014

Getting the same deductible and/or out-of-pocket maximum in 2014 as in 2013 means paying substantially higher premiums – especially if you’re young

Still referring to Exhibit 1, note also that the average 2014 deductible in each premium category has fallen relative to 2013, and that the average out-of-pocket maximum also has fallen. Crucially however, the average deductible for a given dollar amount of premium has risen in 2014 relative to 2013. For example the high quartile average premium for a 21 year old enrollee in 2013 is equal to the middle half’s average premium in 2014 (both $240); however in 2013 the $240 premium purchased a plan with an average deductible of $1,893, where in 2014 the same $240 premium will purchase a plan with an average deductible of $2,842 – nearly a thousand dollars higher (see boxed values in Exhibit 1)

Across all age groups, to get the same deductible in 2014 as might have been purchased in 2013, consumers will have to pay substantially higher premiums. Exhibit 2 shows the average deductible associated with the average premium for each age group in 2013, and the average premium associated with that same average deductible in 2014. Exhibit 3 offers more detail on the same theme, breaking average deductibles into five buckets, and shows the percentage increase in 2014 premium (y-axis) required to purchase a plan with a given level of deductible (x-axis). Appendix I provides the data behind Exhibit 2 in more detailed, tabular form. With the exception of the most generous (i.e. lowest deductible) plans, the cost of a given deductible has risen for all age groups, and has risen more for younger than for older age groups

 This pattern repeats when we compare plans according to out-of-pocket limits – with the exception of very generous plans (i.e. plans with very low out-of-pocket limits), purchasing a plan with a given out-of-pocket maximum costs substantially more in 2014 than in 2013, and these costs have risen more for younger than for older age groups (Exhibit 4). Appendix II provides the data behind Exhibit 4 in more detailed, tabular form

Why the young are paying more – flattening of the age curve

Excluding New York, which did not allow premiums to differ according to age in 2013, in the remaining six states analyzed premiums varied by age across an average range of 3.5:1; i.e. 2013 premiums for 64 year olds were on average 3.5 times higher than 2013 premiums for 21 year olds. Some states allowed ranges as large as 5:1, although not all carriers or plans offered in these states tilted premiums this aggressively as a function of age

In 2014, premiums can vary according to age by no more than 3:1; this of course has the effect of making the premiums of a 21 year old and a 64 year old more similar in 2014 than they were in 2013. This narrowing of the age range can in theory be achieved by any combination of raising premiums for the young or reducing them for the old; however the reality is that on balance, premiums have increased for the young. Simple algebra[3] suggests that flattening of the age curve would tend to increase premiums for 21 year olds by roughly 17 percent, a result that is at least reasonably consistent with the greater increase in 21 year olds’ premiums we see for a given level of deductible or out-of-pocket coverage in Exhibits 2, 3, and 4

Who does or does not get a subsidy, and what this does to affordability

The fact that a given level of deductible and/or out-of-pocket coverage costs much more in 2014 than in 2013 obviously means anyone not receiving a subsidy will pay more for the same level of coverage. For those who are subsidy eligible, two questions remain: 1) what subsidy will be received; and 2) what will the subsidy accomplish in terms of offsetting or even eliminating the ‘premium-for-deductible’ and/or ‘premium-for-OOP-limit’ inflation we see in 2014?

The ACA calls for persons and households with incomes up to 400 percent of the Federal poverty level (aka ‘400 FPL’) to receive a subsidy sufficient to lower the net cost of premiums for a benchmark plan to a percentage of income, with lower percent-of-income limits at lower incomes, and vice versa. That benchmark plan is the 2^nd cheapest Silver plan offered in the individual or household’s pricing region

We identified the 2^nd cheapest Silver plan on offer in each state (Exhibit 5), which allows us to calculate the subsidy available to persons of any income level in each state (Exhibits 6a thru 6d). Note that because premium costs for the benchmark 2^nd cheapest Silver plan generally do not exceed percent of income limits for 21 year olds above 300FPL, that persons in this age group are unlikely to receive subsidies in 2014 (Exhibit 6c). Similarly, persons aged 40 and below in the 400FPL age group are unlikely to receive subsidies in 2014 (Exhibit 6d)

Referring back to Exhibit 2, we showed that average premiums for a given level of deductible had increased substantially in 2014 as compared to 2013. This provides a useful benchmark for establishing which persons are receiving subsidies that are sufficiently large to offset the ‘premium-for-deductible’ inflation in 2014

For 21 year olds, the average 2013 deductible of $3,649 costs $117 more in 2014, thus we can argue that for 21 year olds receiving subsidies of more than $117 a month that a given level of coverage is more affordable in 2014 than in 2013, and that for 21 year olds receiving less than $117 a month in subsidies that a given level of coverage is more expensive in 2014. For 40 year olds the subsidy level needed to make coverage in 2014 at least as affordable as 2013 is $69, and for 64 year olds the subsidy level is $315

On average in the states analyzed, 21 year olds with incomes of 200FPL should receive a subsidy of roughly $133 (Exhibit 6b), which is just more than enough to offset the roughly $117 increase in premiums required to purchase a plan with the same average deductible in 2014 ($3,649) as in 2013. Thus as a very general statement, we can argue that a given level of coverage has become more affordable for 21 year olds with incomes less than or equal to 200FPL; and, conversely that a given level of coverage has become less affordable for 21 year olds with incomes above this threshold

The same average deductible ($4,045) in 2014 costs a 40 year old $69 more than in 2013 (Exhibit 2). On average in the states analyzed, 40 year olds with incomes of 300FPL can expect a subsidy of $51 (Exhibit 6c). Thus we can generally argue that a given level of coverage is more affordable in 2014 for 40 year olds with incomes below 300FPL, and less affordable for 40 year olds with incomes above 300FPL

Finally, the same average deductible ($3,494) costs a 64 year old $315 more in 2014 than in 2013 (Exhibit 2). On average in the states analyzed, 64 year olds with incomes at 400FPL can expect to receive a subsidy of $330. Thus we can generally argue that a given level of coverage is more affordable in 2014 for 64 year olds with incomes below 400FPL, and less affordable for 64 year olds with incomes above 400FPL

Other changes – a shift to more restrictive plan designs

Preferred Provider Organization (PPO) plans (59 pct of plans offered) were the most common format offered in the 2013 individual market, followed by Point of Service (POS) plans (19 pct). More restrictive Health Maintenance Organization (HMO, 17 pct) and Exclusive Provider Organization (EPO, 2 pct) plan designs were a minority of the plans on offer 2013. This very nearly reverses in 2014; 61 pct of plans offered are of the more restrictive HMO (47 pct) and EPO (14 pct) designs. Less restrictive PPO and POS plans’ share of plans offered falls dramatically, and the least restrictive plan format (Indemnity) essentially no longer exists in the market for individually purchased coverage (Exhibit 7)

Exhibit 8 shows, for the seven states analyzed, the percent of plans offered falling into each metal tier