Grim question

In a comment to my earlier post about ObamaCare providing subsidies to help with out-of-pocket costs, Grim asked whether the out-of-pocket subsidies (available only to those who purchase a Silver-level plan) are “generous enough at -250% FPL that it's cheaper to buy a Silver plan than a Bronze or Catastrophic?” After thinking about it, it seemed to me that the way to figure out how much someone will save by buying a Silver plan with out-of-pocket subsidy instead of a Bronze-level plan without such a subsidy is to look at the difference between the actuarial value of the two kinds of policies and see how that compares to the price difference between the two policies.

To do this comparison, I used the Silver and Bronze plans offered by Health Republic Insurance of New Jersey, a health insurance co-op seeded through ObamaCare. Specifically, I compared their two Prime Plans. The monthly premiums are (I told them I was 35 - a harmless fantasy with one of “those” birthdays coming up):

Silver Prime Plan - $384.99
Bronze Prime Plan - $346.75

Therefore, the Silver plan costs $458.88 more than the Bronze plan for the entire year.

From the subsidy information page I cited in my earlier post, I get the following information about the actuarial values of the out-of-pocket subsidies as determined by how your income relates to the Federal Poverty Level (FPL):

If your income is 200-250% of the FPL, a Silver policy must cover 73% of your costs.
If your income is 150-200% of the FPL, a Silver policy must cover 87% of your costs.
If your income is 100-150% of the FPL, a Silver policy must cover 94% of your costs.

We also know that:

If your income is more than 250% of the FPL, you do not qualify for an out-of-pocket subsidy. In that case, a Silver policy must cover 70% of your costs.
Regardless of your income level, a Bronze policy must cover 60% of your costs.

So what we want to know is: How much do you have to spend on health care to recoup the difference between the cheaper Bronze policy and the more expensive Silver policy; that is, to recoup your extra $458.88 in annual premiums?

If your income is more than 250% of the FPL, we can frame this question as:

How much must you spend so that 10% of your spending is greater than $458.88?

The 10% is the greater cost coverage (actuarial value) of a Silver plan (70%-60%).

Answer: You must spend $4,588.80 in order to break even if you buy a Silver policy rather than a Bronze one.

Now we can do the same math for the various out-of-pocket subsidy levels, using their coverages (73%, 87%, 94%) to determine how much more they cover than a Bronze plan at 60%. This gives us cost coverage differentials of 13%, 27%, and 34% which yield the following calculations:

If your income is 200-250% of the FPL, you must spend $3,529.85 in order to break even.
If your income is 150-200% of the FPL, you must spend $1,699.44 in order to break even.
If your income is 100-150% of the FPL, you must spend $1,349.65 in order to break even.

So - and obviously this makes sense - the lower your income and the more you spend on health care, the better deal a Silver plan is for you. But does the out-of-pocket subsidy always make it cheaper for someone whose income is less than 250% of the FPL to go Silver rather than Bronze? No, it doesn’t - assuming, of course, that I’m thinking about this correctly.

Walking through this exercise has made me curious about how the out-of-pocket subsidy is being presented to consumers. The Kaiser subsidy calculator tries to explain it in summary form. For example, if I tell the calculator I’m 35 and live in New Jersey and make $20,000 per year, it tells me about my subsidy and some of my options, and then says:

Out of Pocket Costs

Your out-of-pocket maximum for a Silver plan (not including the premium) can be no more than $2,250. [snip]

You are guaranteed access to a Silver plan with an actuarial value of 87%. This means that for all enrollees in a typical population, the plan will pay for 87% of expenses in total for covered benefits, with enrollees responsible for the rest. If you choose to enroll in a Bronze plan, the actuarial value will be 60%, meaning your out-of-pocket costs when you use services will likely be higher.

As I change the income amount I give it, the out-of-pocket maximum and actuarial value for a Silver plan change accordingly.*

The Kaiser article I cited earlier says that the application of the subsidy can be structured differently from one insurance company to another because insurers “have some flexibility in how they structure their plans to meet cost-sharing reductions.” The article gives an example of way this may work in California, where policies are required “to standardize deductibles, copayments and coinsurance amounts”:

In California, for example, a standard silver plan will have a $2,000 deductible, a $6,400 maximum out-of-pocket limit and a $45 copayment for a primary care office visit. Someone whose income is between 150 and 200 of the poverty level, on the other hand, will have a silver plan with a $500 deductible, a $2,250 maximum out-of-pocket limit and $15 copays for primary care doctor visits.

I suppose it’s possible that all States with their own exchanges have required insurance companies “to standardize deductibles, copayments and coinsurance amounts.” If they haven’t, I’m sure the programmers writing their exchanges wish they had.

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Notes:

* Interestingly, it does this for New Jersey even though New Jersey does not have a State exchange and, therefore, out-of-pocket subsidies should not be available. I don’t know if this means that the Kaiser calculator simply isn’t worrying about stuff like that or that the Obama Administration has decided to ignore that part of the law also.