Creating Gold, Silver and Bronze Benefits – Vanilla or Spumoni

I’ve talked to a lot of agents (and other folks) that believe that the Affordable Care Act requires all Exchange benefits to be basically the same – Gold, Silver or Bronze. They believe that these metallic benefits are highly regulated and will eliminate “qualified high-deductible health plans” (QHDHP) which support Health Savings Accounts. They think that there is virtually no wiggle room in Silver. At least that is the rumor. Fortunately this is not true, or at least it doesn’t have to be true.

First a recent counter-example: The California Health Benefits Marketplace exchange (called Covered California) announced that they were going to standardize their metallic plans and require all health plans offer only those identical plans. Competition would occur only by way of premiums and provider panels. Their reasoning was that consumers needed a true, identical apples-to-apples comparison to properly shop.

You can see their approved benefit structure here:

http://www.coveredca.com/media/10748/CoveredCA-HealthPlanBenefitsComparisonChart.pdf

As you can see, Covered California will not offer QHDHP’s. Hopefully this will not become the norm with other state exchanges.

Most exchanges, including the federal marketplace, will allow health plans the ability to create their own plans – as long as they meet metallic guidelines and include required “essential health benefits”.  Various combinations of deductibles, coinsurance, copayments and out-of-pocket limits will be allowed – as long as they can be actuarially “scored” as proper metallic values. If a QHDHP can be created within the guidelines, they should and often will be allowed.

METALLIC BENEFITS

The rule for being certified metallic is that the “actuarial value” (AV) of the benefits comply with the following chart:

Bronze (60%) – must score between 58% & 62% AV

Silver (70%) – must score between 68% & 72% AV

Gold (80%) – must score between 78% & 82% AV

Platinum (90%) – must score between 88% and 92% AV

Catastrophic (57%) – with specific benefit requirements

What does actuarial value mean? It is the average expected payout by the health plan when a large standard population’s claims are run through the benefits. So if on “average” a particular health benefit plan design would pay 70% of the claims, then that would be considered a Silver plan. As you can imagine, there are numerous combinations of benefits (deductibles and copays, etc…) that could yield Silver benefits. It turns out that even a QHDHP can garner a Silver (or Bronze or even Gold) ranking.

UNLOCK YOUR INNER ACTUARY

I recently was referred to the government’s actuarial calculator. It is the exchange’s official scorekeeper. When an actuary comes up with a benefit plan, they run it through this calculator to get the official metallic certification. If the benefits do not meet the essential health benefit, then the calculator “fails” the plan and it cannot be sold in any exchange. If the official AV calculator certifies the plan’s unique benefits, then they are good to go in the appropriate metallic band (except in California of course).

The good news is that I was able to come up with all kinds of different Silver plans. I started with a few common plan designs and then, when I got comfortable with the AV calculator, I went wild. I thought up all kinds of goofy Silver and Bronze plans that no one would sell (or would they?!). It wasn’t too hard to come up with several Bronze and Silver QHDHP benefit designs. It was a bit more difficult with Gold, but do-able. Then I got serious about designing innovative (…or stupid, I’m not sure yet…) plan designs. It’s nice to be able to think outside the box, but not have to spend money on actuaries to rate each crazy idea.

If there are any doubts, I really had a blast with this.

If, like me, you think designing metallic benefits are a fun pastime (or if you are suffering from insomnia and want a non-chemical solution) try unleashing your inner actuary:

No password needed. Have fun!

http://cciio.cms.gov/resources/files/av-calculator-final-2-20-2013.xlsm

Let me know if you come up with a winning plan design. We may use it for one of Arches Health Plans.

EXCHANGE PRODUCTS AND SUBSIDIES

Every health plan within an exchange is required to offer at least one Silver plan and one Gold plan. If the plan chooses, they may offer a Platinum plan and/or a Bronze plan and/or a catastrophic plan (explained below).  Some exchanges, such as Covered California may require plans to offer all metallic products, not just Gold and Silver. Most health plans will want to offer Bronze and Catastrophic plans alongside of the required Gold and Silver. Most plans will not want to offer Platinum benefits, believing them to be a magnet for the really expensive cases.

The subsidy value is based on the premiums of the second lowest priced Silver plan of those available in the zip code of the enrollee. The actual subsidy is based the enrollees income. Once the subsidy is determined, then the enrollee may choose different plans, but would be responsible for the incremental difference in premium (whether higher or lower).  It is possible that in some unique cases, a particular Bronze plan may actually have zero premiums after the subsidy.

In addition to a premium subsidy, there are certain “benefit enhancements” required for Silver plans chosen by the lowest income families. When incomes are less than 150% of the federal poverty level, enrollees are entitled to enhanced “Silver” benefits. The exchange will assign Silver levels of 73%AV, 87%AV and 94%AV. These enhanced Silver plans are not “sold” but rather assigned by the exchange based on the enrollees income.

Covered California has published their required benefits for those enhanced Silver levels:

http://www.coveredca.com/media/10745/CoveredCA_HealthPlanBenefitsSummary.pdf

Another type of exchange product will be the “Catastrophic Plan”, with a 57% AV. The Catastrophic benefit structure is pretty well defined by code. It must include exactly three first dollar offices visits, but no other first dollar benefits. It is only sold to those aged 21 through 29 and to some strange situations where a person does not qualify for a subsidy, but Silver coverage is technically “unaffordable”. (This is a quirk where an older person, who has higher rates than a younger person, has income just outside the subsidy range but the Silver plan costs more than 9.5% of their income – rare but worth mentioning.)

Another required plan benefit design is exclusively for Native Americans with incomes less than 300% FPL. Qualified Native Americans are entitled to special benefits with 100% AV. Of course a 100% AV plan means that there are zero co-payments, deductibles and co-insurances due from the Native American enrollee. (Not much plan design work needed there.)

For all the enhanced benefit plans, the federal government will reimburse the health plans for any benefits paid beyond the standard benefits.

CONCLUSION

The bottom line is that the federal actuarial value calculator has surprisingly few restrictions. Many thousands of different plan designs are possible. The only limitations are the imagination of the health plan, the ability to administer the benefits and an exchange flexible enough for innovation and out-of-the-box thinking. In my view, it is unfortunate that Covered California will only allow vanilla plan designs. The benefit world is so much more satisfying with 31 flavors (or more).

Arches Health Plan will be benefit design innovators. Because if Arches Health Plan doesn’t change things, how is healthcare going to get better?