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Short Analysis
December 2014

Standardized Health Plans: Promoting Plans with Affordable Upfront Out-of-Pocket Costs

By:
Lydia Mitts

When consumers are required to cover the full cost of their care up front—as is the case with many high-deductible plans—they may not be able to afford to get the care they need. To provide consumers with plan options that have lower cost-sharing, policymakers and marketplace officials should consider establishing “standardized plans.” These are plan designs that all insurers are required to sell in the marketplace that have standardized cost-sharing for covered health services. 

By establishing standardized plans with lower upfront cost-sharing for at least some services, a marketplace can ensure that all insurers sell plans with affordable upfront cost-sharing. Washington, D.C., is the latest health insurance marketplace to develop standardized plans and require insurers to offer them, beginning in 2016. 

Standardized plans are designs that 

  • are developed by the marketplace 
  • have defined or identical cost-sharing (the share of health care costs a consumer is responsible for paying) for covered services
  • all insurers in the marketplace are required to sell

Why upfront cost-sharing can be a burden for consumers

In 2014, many of the health plans available in state marketplaces at the most popular silver metal level had deductibles in the thousands of dollars. For consumers with low and moderate incomes, such high deductibles can pose significant barriers to obtaining even routine, office-based health care. 

For these consumers, family budgets are already tight. After covering daily living expenses, many don’t have extra money for a doctor’s visit, medication, outpatient surgery, or other types of health care.  This can cause families to forgo needed care and face more serious, preventable health problems down the line. For these reasons, it is important that marketplaces offer plan options that have lower levels of cost-sharing up front, at least for primary care and ambulatory services, to ensure that families can treat illnesses early and maintain good health. 

Standardized health plans are one way that marketplaces can address the affordability of upfront cost-sharing 

Establishing standardized plans with lower upfront cost-sharing for at least some care is one policy that officials should consider to ensure that a state’s marketplace sells plans with more affordable out-of-pocket costs (For others, see our issue brief about designing silver plans). This is an option state policymakers and marketplace officials could establish for state-run marketplaces. The federal government also could establish standardized plans that insurers participating in federally facilitated marketplaces must sell.

Several state-based marketplaces—California, Connecticut, Massachusetts, New York, Oregon, and Vermont—already have developed standardized plans in each metal level that insurers participating in their health insurance marketplaces must sell. As we have previously discussed, many of these state-developed standardized plans have lower upfront costs for at least office-based care. 

Washington, D.C., will require health insurers to sell standardized plans beginning in 2016

Last month, D.C.’s health insurance marketplace, D.C. Health Link, finalized standardized plan designs in each plan metal level that it will require health insurers to sell in 2016.  D.C.’s approved plan designs offer additional examples of ways to design plans, particularly at the silver and bronze level, that maintain more affordable out-of-pocket costs for ambulatory care. 

Affordable cost-sharing elements in D.C.’s standardized plans 

D.C.’s standardized bronze and silver plans will include multiple elements that help keep cost-sharing more affordable for routine and ambulatory care. 

Services exempted from the deductible: Both D.C.’s standardized silver and bronze plans will have significant deductibles ($2,000 and $4,500 for an individual, respectively). However, they will exempt coverage of numerous ambulatory and outpatient services from this deductible and charge more manageable copayments for these services. 

  • D.C.’s silver plan will exempt all office-based care, laboratory tests, imaging, and outpatient rehabilitative and habilitative care from the deductible. 
  • D.C.’s bronze plan will exempt fewer services from the deductible, but these include critical office-based primary care, mental health care, and specialty care; generic drugs; and urgent care visits. 

Separate drug deductible: D.C.’s standardized silver plans will have a separate $250 deductible for prescription drugs. Generic drugs will be exempt from this deductible and will have only a $15 copayment. Other states, like California and Connecticut, have also set separate drug deductibles in their standardized plans. 

Offering a separate drug deductible helps those consumers who need more expensive brand-name drugs. By having a separate, smaller drug deductible, these consumers can get help with the cost of their prescriptions without having to first pay off their full medical deductible. 

Lower copayments for primary care and generic drugs: In addition to exempting primary care visits from the deductible, D.C.’s plans will also maintain lower copayments for such care.

  • D.C.’s silver plan will keep copayments for primary care visits and mental health and substance use disorder outpatient visits at $25. Specialty care visits will have a $50 copayment. And generic drugs will have a $15 copayment. 
  • In D.C.’s bronze plan, primary care visits, mental health and substance use disorder outpatient visits, and specialty care visits will all have a $50 copayment.  Generic drugs will have a $25 copayment.  

There is no such thing as a “one-size fits all” health plan 

D.C.’s silver and bronze plans will limit cost-sharing for many ambulatory services. However, they will come with significantly higher out-of-pocket costs for more intensive and complex care, like outpatient surgery, inpatient care, and specialty drugs. For consumers with intensive or specialized care needs, the out-of-pocket spending limit will protect them from out-of-pocket costs above $6,350. But until they reach this limit, consumers will still likely face significant out-of-pocket costs in these plans. For some consumers, plans with higher upfront cost-sharing for care and a lower out-of-pocket spending limit may better suit their health care and budget needs.  

This trade-off results from some of the general limitations of silver and bronze plans. Because silver and bronze plans are allowed to cover, on average, 70 percent and 60 percent of consumers’ health care costs, respectively, they cannot shield people with expensive health care needs from some significant out-of-pocket costs.  And keeping cost-sharing low for some services requires charging higher cost-sharing for other types of care. 

Because of this trade-off, it is important for marketplaces to offer a diverse selection of plan designs in each metal level.Diversity of plan designs helps to ensure there are plan options suited to diverse consumers’ health care needs. 

Standardized cost-sharing helps consumers compare health plan options in the marketplace 

Regardless of how cost-sharing is set in a standardized plan, requiring all health insurers in a marketplace to offer a standardized plan option benefits consumers in other ways.  When all insurers offer a plan with identical cost-sharing, it is easier for consumers to make apples-to-apples comparisons of different insurers’ plans based on other important factors, like premiums, provider networks, and additional benefits covered.  

As they think ahead to future plan years, state, marketplace, and federal officials must make it a priority to tackle unaffordable cost-sharing in health plans. This should include developing plan designs with more affordable upfront out-of-pocket costs for at least some ambulatory and primary care services. They can also help consumers compare plan options and make educated plan selections. 

However, implementing standardized plan options requires time. As state-run marketplaces and federal officials in charge of standards for federally facilitated marketplaces begin considering marketplace insurer requirements for 2016 and beyond, advocates should push to have plan standardization on the agenda. 

Standardized plans can be a powerful tool for promoting plans with affordable cost-sharing.

You can see a detailed breakdown of cost-sharing for all of DC Health Link’s 2016 standardized plan designs here.

Note: Lydia Mitts was a member of the Standardized Plan Advisory Working Group to the D.C. Health Benefit Exchange, which was tasked with developing recommendations for standardized plan designs for the D.C. Health Benefit Exchange.