There is now a single test for party loyalty: do you love or hate the Affordable Care Act? Each side can pass this test while also supporting the basic notion that expansion of health insurance coverage is a worthy goal, given that over 40 million people remain uninsured. There is a provision in the ACA that can expand coverage to more Americans and, as it turns out, might be something that even ACA opponents can support. It relates to catastrophic coverage.
Catastrophic coverage isn’t just for catastrophes; it is for people who, for lower monthly premiums, are willing to pay for a substantial amount of their health care out of their own pockets knowing that they have a backstop if they really get in trouble. The ACA limits catastrophic availability to those under 30 years old, the so-called “young invincibles.” The logic is that people in their 20s are generally healthy and may not want to pre-pay for routine health care that they may never use. Their medical spending is generally low and infrequent and is dwarfed by many health plan premiums. (Catastrophic coverage is also available to those with certain hardship exemptions, but this is not intended to be a large population.)
While they come with exposure to high out-of-pocket costs, catastrophic plans don’t skimp on preventative care. Before reaching the deductible, catastrophic policies still cover up to three office visits and the same list of preventative services that the other ACA plans are required to (like cholesterol and colorectal cancer screenings).
Exchange enrollees are already exhibiting consumer preferences and instead of choosing gold and platinum plans with low deductibles and high premiums, many are choosing lower premiums and higher deductibles–the silver and bronze plans. Of the two, the bronze plans have lower premiums and higher deductibles that, in 2014, average $5,081 for an individual and $10,386 for a family. Catastrophic plans have deductibles that actually are not that much higher: $6,350 for individuals and $12,700 for families. Catastrophic premiums are about 12% lower than the bronze premiums (and 30% lower than silver premiums). The truth is that some savvy shoppers buying insurance on the exchanges would likely buy catastrophic plans if they were structured a little better.
Congress should improve catastrophic policies and expand their availability to the entire population. This would enhance access and increase affordability. While those with low incomes will continue to choose subsidized bronze and silver-level plans, not everyone else needs or wants a comprehensive health plan. However, just about everyone, even those who are well off, can be ruined by the high cost of an unlikely event. Catastrophic coverage would protect against this burden for people who are cost conscience and otherwise healthy.
Healthy individuals and families might see the benefit in opting for a plan that only covers expensive and unlikely conditions like a major trauma or cancer. This would allow consumption on an as-needed basis of more routine health care such as primary care visits and inexpensive medications. With a small but important tweak to the law, Congress could allow consumers to use Health Savings Accounts for routine care. HSAs have the benefit of rolling unspent pre-tax savings for health care into future years.
In addition to allowing catastrophic enrollees to use HSAs, Congress should allow premiums to increase gradually based on age so that young Americans aren’t subsidizing everyone else. This keeps the plans affordable for the youngest, increasing the chances they will buy insurance.
Catastrophic coverage should be able to gain bipartisan support. Many ACA opponents object to the entitlement nature of the subsidy, so, “subsidy-free” catastrophic coverage should be appealing. Individuals would be able to choose the insurance that best fits their needs, at a reasonable cost, and without government support. Catastrophic plans existed before the ACA, notably as “high-deductible health plans” in the Bush-era Medicare drug benefit bill.
Supporters of the ACA should be attracted to the egalitarian concept of making what is available to those in their 20s also available to people in their 30s, 40s, and beyond. These plans can be made more affordable for younger beneficiaries by allowing proper age adjustment. Further, the ACA was passed in the pursuit of universal health insurance; expanded availability of affordable catastrophic coverage would be a big step toward accomplishing this.
The good news is that the groundwork has been laid for this common-sense, broadly appealing proposal to make catastrophic coverage universally available. A simple revision to the law (and possibly a tweak to avoid any risk pool effects that increase ACA subsidy payments) would allow insurers to offer the benefits of catastrophic coverage to all Americans.
Lambert van der Walde was Capital Markets Advisor to the CMS Administrator and now runs VAN DER WALDE & CO., advising health care companies and investors as they deploy capital across all sectors of health care.