Friday, October 11, 2013

You won't find the words "software glitch" in this post - Looking for the "affordable" in the Affordable Care Act

Like any nerdy economist, I spent October 1, sitting at my computer trying out Oregon's Obamacare exchange, called Cover Oregon.

It took a few tries to get the site to produce anything other than a "Whoops." (Yes, government websites in Oregon use the word "whoops.") After that, I got whopping list of 69 Obamacare-compliant plans for my family of six: two adults over 40 and four kids ranging from preschool to high school age.

The list Cover Oregon spits out is not particularly helpful in comparing each of the plans, so I put together this graph of each of the plans available to my family.

Here's what the figure shows:
  • There is a wide range of prices. Among plans with a $2,500 deductible, the most expensive plan (Providence Gold) is $3,800 more than the least expensive plan (Moda Health Bronze).
  • Looking at just the annual payment, the lowest cost plans are Moda Health's $5,000 deductible and $5,250 deductible plans, with an annual cost of about $7,050. That's about the same as the payment on a $125,000 mortgage.
  • You cannot see it on the figure, but Oregon's Health CO-OP, which has made quite a bit of a splash with the media, has some of the highest rates. Slap the word co-op on something (especially in capital letters), and Oregonians will eat it up. 

What's the deal with high deductible plans?

Let's rejigger the graph a bit.

The figure below shows what the total annual cost of the plans would be if the deductible is added to the cost. It does not do much good to have insurance if you have to spend thousands of dollars before coverage kicks in.

If you look at the dotted line between deductibles of $1,000 and $5,000 the line appears to be pretty flat. In other words, generally speaking, an increase in the annual deductible is matched dollar-for-dollar with an decrease in the annual payment. That seems to make sense.

Now, look what happens if the annual deductible is more than $5,000. The annual payment increases rather than decreases, which seems at odds with how things should be. There seems to be at least two reasons:

  1. For people with extremely high (i.e., "catastrophic") health care costs, the annual deductible is virtually meaningless. If you are facing $100,000 in medical bills, it makes little difference whether you have a $500 deductible or a $5,000 deductible. Thus, those who are most costly to insure may self-select into plans with higher deductibles. An observation verified in a clunkily written working paper.
  2. There are fewer insurers offering plans with higher deductibles. The reduced competition among providers may result in higher prices.

What about the subsidies?

Because our family income is about the same as a Congressional staffer's, we don't qualify for any of the subsidies--but if I gave up teaching or did less consulting, I would qualify for a subsidy. (Talk about incentives!)