White House to Americans: Pay Astronomical Deductibles -- or Else

White House to Americans: Pay Astronomical Deductibles -- or Else

iStockphoto/The Fiscal Times

Bill Clinton managed to get himself into hot water this week by stating the obvious about outcomes for many enrollees of the Affordable Care Act. “It’s the craziest thing in the world,” the former president told a Flint, Michigan audience at a rally for his wife, who plans to keep and expand Obamacare.

People in the government-controlled individual markets gained access to health insurance Clinton said, but “wind up with their premiums doubled and their coverage cut in half.” Many of them, he noted, “are small business people and individuals who make just a little too much to get any of these subsidies.”

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That just covers the premiums, which will skyrocket again in 2017. Clinton neglected to mention the other part of the equation that squeezes everyone regardless of whether they qualify for premium subsidies or not – deductibles. Except for an annual wellness check, any health care provided to consumers has to come out of pocket until the annual deductible has been met. In 2016, the average bronze plan deductible was $5,731 for individuals and $11,601 for families.

For a 40-year-old individual in 2016, the cost of this care would be $3,479 in premiums plus the deductible before the first benefit could be covered – a total of $9,210 out of pocket. Even if subsidies pared premiums all the way down to Barack Obama’s promised $75 per month, it would still require the consumer to spend over $6600 for anything but a basic wellness check, a service that would cost a few hundred dollars at most, before having the first benefit covered. And that situation will only get worse in 2017, as insurers use increases in deductibles to buffer the premium hikes that have already been signaled.

In an attempt to escape this “craziest system,” some consumers – especially lower-income workers – had tried a workaround authorized by Congress and exempted from insurance-coverage requirements more than a decade before Obamacare appeared on the horizon. Insurers have offered “fixed-benefit indemnity” plans for twenty years, which pay out set amounts for various events regardless of the actual costs incurred.

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Rather than act as third-party payers that get between the consumer and the provider and therefore hinder price signals, fixed-benefit plans act as financial backstops for consumers who then negotiate on price with the providers directly.  A day in the hospital might get $200 coverage, for instance, or a clinic visits $100. 

Best of all for consumers with tight budgets, the premiums run around $1000 a year and have no deductibles or coinsurance requirements. That premium pricing is nearly the same as an Obamacare plan with full subsidies on the exchange, and unlike a bronze plan, would pay out immediately rather than wait for the consumer to cough up the first $5731. Younger, healthier, and less financially secure consumers can choose sufficient coverage and pay the mandate tax fee rather than get roped into high deductibles and high premiums, or perhaps use one in tandem with other coverage. Millions of consumers use that option in one form or another to this day. 

That has the Obama administration seeing red. In 2014, Health and Human Services issued a rule forbidding the sale of fixed-benefit plans unless used as supplemental insurance for insurance with approved, comprehensive coverage. In essence, the rule stole a lower-cost option from those who could least afford it while allowing wealthier Americans the ability to buffer the skyrocketing deductibles in the ACA exchanges. 

There was a big problem with this rule, however – Congress had explicitly authorized fixed-benefit plans in 1996 by statute, and nothing in the Affordable Care Act repealed that law. In July of this year, a federal appeals court struck down the rule, rejecting the Obama administration’s argument that the existence of such plans confused consumers. 

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The ruling upheld the original district court’s decision, which castigated HHS for promulgating a rule that “has no basis in the statutory text it purports to interpret and plainly exceeds the scope of the statute.” The appeals court rebuked the administration, writing, “Disagreeing with Congress’s expressly codified policy choices isn’t a luxury administrative agencies enjoy.” 

The White House hasn’t quite gotten that memo. HHS has floated a new attempt to drive fixed-benefit plans out of the market, this time by forcing insurers to pay the exact same dollar amount for any payable event. In other words, whatever payment the insurer provides for a day in the hospital would have to equal what they pay for a doctor visit, and vice-versa.

Not only is this irrational, but it also has no precedent in insurance or any other form of commerce. Rather than make fixed-benefit plans less confusing – the ostensible rationale for the Obama administration’s hostility toward such offerings – it makes them almost incomprehensible and completely unmanageable. 

This move is a measure of the administration’s desperation with their signature legislative achievement. The White House wants to force consumers to abandon these plans so that they will have no choice but to get plans approved by bureaucrats in Washington DC, but especially those younger and healthier consumers who have every reason and financial incentive to use fixed-benefit plans. Forcing them to pay the higher premiums into the ACA risk pools with their low utilization rates might – might – slow down the rapid increases in premiums that have plagued Obamacare since its first year.

Congress approved these plans as solutions for consumers who don’t require comprehensive insurance but who do need a rational, low-cost backstop for a moderate level of use. That was a step in the right direction.The White House’s heavy-handed attempt to force everyone into their failing Obamacare system is several steps in the wrong direction.

In fact, to quote Bill Clinton on the ACA and its irrational approach: “It’s not like life insurance, it’s not like casualty, it’s not like predicting floods – it doesn’t work.”