Tens of millions of Americans are now pondering whether to purchase conventional health insurance through their employer or the Obamacare exchanges, or go without and find an alternative type of coverage (or, unwisely for most people in my opinion, go completely without any type of coverage at all).
I’ve described many of the alternatives to conventional health insurance, such as health care sharing ministries or fixed-benefit insurance. The other day I ran across what I thought was some fairly insightful advice on choosing plans within the exchanges that I wanted to share.
Dr. Scott Gottlieb is a practicing physician who also is affiliated with the American Enterprise Institute, where he comments on health care policy from a free-market perspective. He recently wrote about why for most people choosing health insurance on the Obamacare exchanges, the ‘bronze’ plan is the best option.
For those of you who aren’t familiar with the details, there are basically four levels of coverage available through the exchanges – bronze, silver, gold, and platinum. Bronze plans are typically the least expensive and are expected to cover about 60 percent of the average person’s medical costs. Silver is the next most expensive, expected to cover 70 percent of medical costs, and gold and platinum are expected to cover 80 and 90 percent of costs , respectively.
There is also a ‘catastrophic’ plan level that is available to young people under 30, anyone who would have to pay premiums in excess of eight percent of their income, and also anybody who had their previous plan cancelled because it didn’t meet Obamacare’s requirements. It’s generally less expensive than the bronze plans.
Generally speaking, the idea was that the greater the level of coverage, the better the insurance. But Dr. Gottlieb had some interesting comments at Forbes.com the other day that may change the way people think about this. Here are some excerpts:
For those who find themselves shopping for health coverage through Obamacare, here’s a general tip: save cash on your premiums and buy the bronze health plan. For most consumers, the gold and platinum options will be a waste of money.
We analyzed dozens of Obamacare plans, and found one striking result. The networks of providers, and in many cases the drug formularies, are the same whether you’re buying a particular insurer’s bronze plan, or purchasing the same insurance option in a gold or platinum offering. My American Enterprise Institute colleague Kelly Funderburk and I posted some of our data here.
The bottom line is this. When you’re choosing a particular insurance offering, you typically can’t trade up to a better benefit by buying the gold or platinum variety of that plan. It’s usually the exact same benefit regardless of the metal you choose. What varies between these different metal plans? Mostly, just the co-pay structure and deductibles. As you pay higher premiums for a gold or platinum plan, your deductibles and co-pays will decline… by buying the costlier plans, all you’re doing is fronting a higher premium to buy down your anticipated out of pocket costs. You’re not getting a better network of doctors or a better formulary of drugs.
This rule applies to the different level of metal offerings within the same health plan. When you look across the different types health plans that an insurer might offer (its HMO versus its Preferred Provider Organization, or Exclusive Provider Organization) there’s often more variation in the size and quality of the provider networks. But in most markets, this kind of plan variety isn’t available…
All of this means that unless you plan to use enough healthcare services to spend your entire deductible, for many people, buying the costlier gold or platinum plans will be wasted money. If you’re not sure that you’re going to max out your deductible, you may be better off buying a cheaper bronze plan and using the money saved on premiums to put some cash away to pay for your out of pocket costs.
Dr. Gottlieb does note that there are some instances in which it might make more sense to buy up to the more expensive Silver, Gold or Platinum plan:
…People with incomes below 250% of the Federal poverty level ($58,000 for a family of four in 2013) will be eligible for special “cost-sharing subsidies” that can reduce deductibles, co-payments, and co-insurance. These subsidies only apply if you buy a silver plan…
In addition, people who earn below 250 percent of the FPL and qualify for the subsidies will also have their maximum out-of-pocket (OOP) spending capped at lower levels…
…In some large markets, insurers are still offering traditional preferred provider organizations alongside the more common HMO insurance products. These PPO-style plans sometimes offer similar networks to those that insurers use to service their commercial plans, rather than the skinnier networks that they are using for many of their Obamacare plans.
It’s hard to find these PPO-style plans. There are limited markets (and a small number of insurers) that offer these options. But if you’re in a big city, and can find one of a PPO, it may have a better provider network than the bronze offerings.
Finally, there are some insurers that provide different drug formularies, depending on which metal you choose. Many of the Obamacare plans have closed drug formularies, where there’s no coverage for drugs that aren’t on the insurers formulary list of preferred drugs. But with their costlier gold or platinum plans, some insurers are providing partial coverage for drugs that aren’t on their preferred drug formulary…
Dr. Gottlieb’s conclusion is that “…selecting a costlier gold or platinum option doesn’t usually get you a better benefit, just lower out of pocket costs. There are exceptions… But for most consumers, the cheaper bronze plans may be the best choice.”
Buying a bronze plan on an Obamacare exchange is usually going to come with a deductible in the $5,000 – $6,000 range for individuals and $10,000 – $12,000 for families, and many of these plans also allow Health Savings Accounts (HSA) to be established and funded. Savings from lower premiums can be funneled into the HSA, allowing you to use tax-advantaged money as a self-pay patient.
One thing that Dr. Gottlieb noted is that the Obamacare plans, bronze through platinum, tend to have narrow networks of providers, meaning that your choice of doctor would be limited – if you abide by the network. As I’ve pointed out previously, you don’t have to only go the doctors the insurer tells you to, and can actually save money by going out of network. The downside of course is that money spent on an out-of-network provider won’t count towards the deductible. That’s not a problem for most people, who will never come anywhere near their deductible in any given year, but it is worth considering.
“Insurance is complicated to buy,” someone recently said. True enough. Hopefully Dr. Gottlieb’s insights will help make it a little less complicated!