Over the past months, insurance companies from coast to coast have announced plans to increase premiums on Healthcare.gov and state-based marketplaces by double-digit amounts for 2016. The premiums bumps, which are not yet finalized, range from more than 30 percent in Illinois and North Carolina to more than 50 percent in Minnesota. Although the Obama administration has been putting pressure on states to keep rates down, arguing that overall healthcare costs have risen by just single-digits, insurers contend that pent-up demand for care among new enrollees has driven up costs and that dramatic premium increases are needed.
While much of the increase for the average individual policyholder will be supported through increased tax credit subsidies from the federal government, which were upheld in the King v. Burwell ruling in late June, other beneficiaries will see major increases in their out-of-pocket premium payment each month. The big question as we move into the ACA’s third insurance open enrollment period this fall: will people shop around more actively for higher value plans and make better choices than they have in the past?
Common sense would suggest that consumers, when faced with rising insurance premiums, will invest more energy into finding plans that appear cheaper and (hopefully) still enable access to their providers and medications. However, there are several factors that might prevent people from making these decisions: inertia, lack of knowledge, and lack of access to expert insurance navigators. If these challenges are addressed, consumers might become better equipped to find the best plans for them.
Although the premium increases expected for 2016 are dramatic, it might be useful to look at situations in the past where consumers faced more modest increases. Reports from December 2014, as the deadline for re-enrolling in or switching between marketplace plans approached, showed that consumers were not enthusiastic about switching to a new plan. This was true even if the current premium was going to increase. 94 percent of beneficiaries who bought insurance on the California marketplace for 2014 chose to keep the same plan for 2015.
Said one Arizona man to the New York Times, “If it’s working, why try to fix it?”
Research on private, employer-based marketplaces conducted by the Kaiser Family Foundation has found that plan-switching decreases over time: 68 percent switched after the first year but just 19 percent switched in the second year. The report says that the behavior “could indicate satisfaction with their choices or simply inertia.” Interestingly, the report finds that people who switch tend to “‘buy down’ on coverage, choosing less coverage than in the previous year.”
A recent study from researchers at Carnegie Mellon University found that, in a company with 50,000 employees, 65 percent of workers failed to select the most sensible plan out of just four options. The bad choices resulted in an unnecessary $373 per year in extra health spending for each worker. Workers who selected high-premium, low-deductible plans lost out; those who selected high-deductible plans actually saved money. Although this is one employer, and different premium and deductible levels make sense for different people depending on their situations, the research indicates how difficult it can be for people to make these decisions.
Not all consumers make a conscious decision whether to stick with a plan despite higher costs. Sometimes consumers are just unaware of increases until they receive the first bills in the new coverage year. In other cases, the changes in the plan are less obvious. While the premium and deductible might remain the same, the co-pays for specialty doctor or ER visits might increase. Insurers and the ACA marketplaces could and should do more to make consumers aware when their premiums or out-of-pocket responsibilities change from year to year.
One main cause of premium increases in 2016, among several causes, has precisely to do with why switching to less comprehensive coverage would be dangerous for consumers. Insurance companies report that they underestimated the demand for medical care of individual enrollees on the marketplaces. As a result, the insurers spent more covering consumer claims than they brought in from monthly premiums. That means that, on average, the consumers who bought health coverage were sicker than expected.
Those sick enrollees are the very same people who need good coverage the most. However, in a time when plans are becoming low-premium and high-deductible, will consumers have to make a trade-off between cost and coverage? If so, do they have all the tools to help make these complex and important determinations? I have written before about the true costs of being underinsured and how difficult it can be for people to attune coverage to their needs.
For consumers, the decision of whether to keep a plan or switch is complicated. The wide range of plan options, whether on ACA marketplaces or on employer-based marketplaces, can actually make people want to avoid change. People tend to stick with what they have and are reluctant to spend time and energy finding alternatives. Behavioral economists call this “status quo bias.” It can be a strong reflex when people are overwhelmed with choices.
The choice is made more difficult by the number of factors to consider beyond the premium (or sticker price) of a plan: how large the deductible is, how high co-pays are for different services, which doctors and hospitals are in the network, where a certain drugs sits on a plan’s formulary, and more. When published information about the specific doctors and drugs covered under each plan is unreliable, as is often the case, things become even worse. Issues of health literacy aside, people are short on time and do not have the patience to sort through dozens of plans.
That difficult conundrum – where people stick with plans that are not their most affordable or best option – means there is an opportunity to provide the tools to guide consumers through the complexity and help them make better decisions with less anxiety and uncertainty. The current model for marketplaces, which involves putting as much information in front of the consumer as possible, no doubt works for some people. However, it does not work for everyone.
Ultimately, people who use the marketplaces want to take charge of their healthcare and take back control from the complicated, opaque world of health insurance plans. It is the immediate responsibility and in the long-term interest of all healthcare stakeholders to recognize, embrace and support this important shift in power from insurers to consumers.
NOTE: The views expressed here are those of the authors and do not necessarily represent or reflect the views of Healthcare, Inc. and HealthCare.com
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