Interpretations of our latest study

Our recent report comparing off-exchange premiums vs. on-exchange premiums continues to receive attention. The report examined the lowest premiums for four major off-exchange insurance companies in 39 states versus the lowest premiums found on-exchange for plans of the same metal tier. HealthPocket found that exchanges had cheaper metal plans available than the off-exchange companies in 35 of the 39 regions examined. On average, the lowest cost off-exchange plan was over 40% more expensive than the lowest cost exchange plan in the same region.

A lingering question raised by the study results is “Why are the off exchange plans among UHC, Aetna, Cigna, and Assurant more expensive?” The short answer is: We don’t know…yet. There are several possible factors that alone or in combination could have influenced the off-exchange pricing. One factor is that the off-exchange insurance companies may believe that by avoiding exchanges they can shield themselves from premium comparisons and, therefore, remain less competitive on pricing and push sales volume by classical marketing techniques. Without insider information, it is hard to determine if this explanation played any role in pricing. It should be noted that even off-exchange these same companies face premium comparisons on HealthPocket’s web site since we display both on-exchange and off-exchange health plans together so consumers can make informed decisions.

Another factor that could be influencing off-exchange pricing is the composition of health plan networks. McKinsey published a recent report found that health insurance plans with broader hospital networks are associated with higher premiums as compared to narrow network products. However, the McKinsey study focused on hospitals and did not examine other healthcare provider issues such as specialist participation that might affect premiums. With respect to HealthPocket’s study, we did not include an analysis of healthcare provider networks so we do not know if there are any substantive differences between the off-exchange and on-exchange networks.

Yet another factor that could influence premiums is expected differences among risk pools and their attendant rates of medical usage. Exchange health plans must combine on-exchange and off-exchange beneficiaries within a single risk pool while an insurance company that is only off-exchange has a risk pool with no on-exchange beneficiaries to consider from an actuarial perspective. Why does this matter? Exchanges may attract a disproportionate amount of low-income consumers (because income-based subsidies are only available on-exchange) with higher rates of medical service utilization. However, if this assumption were true it would suggest lower costs for off-exchange plans and the ability to market more competitive premiums. As noted earlier, the four major off-exchange carriers examined had less competitive premiums with respect to their lowest cost offering in each metal tier.

HealthPocket intends to investigate this matter further. We’ll keep you posted.

Vision, Dental, and Hearing Benefits in Medicare Advantage Plans

HealthPocket’s new Infostat examined the prevalence of additional vision, dental, and hearing benefits in Medicare Advantage (MA) plans. We found that 97% of MA plans offered at least one vision, dental, or hearing benefit in both 2013 and 2014. The percentage of plans that offered all three benefits decreased from 47% in 2013 to 42% in 2014.

Percentage of plans that offer vision, dental, or hearing benefits

5x6 graph

Additional Benefit 2013 MA 2013 MA-PD 2013 MA (no PD) 2014 MA 2014 MA-PD 2014 MA (no PD)
At least one 97 97 98 97 96 97
Vision 95 94 98 94 93 96
Dental 73 75 56 71 73 55
Hearing 62 62 62 59 59 55
All three 47 49 32 42 43 28

The percentage of MA plans with drug benefits (MA-PD) that offered all three additional benefits decreased from 49% in 2013 to 43% in 2014. Moreover the percentage of MA-PD plans that offered at least one vision, dental, or hearing benefit was 97% in 2013 and 96% in 2014.

As for MA plans without drug benefits, the percentage that offered at least one vision, dental, or hearing benefit was 98% in 2013 and 97% in 2014. The percentages that offered vision or hearing benefits were within 4% of the corresponding percentages for MA-PD plans. However the percentage of MA plans without drug benefits that offered dental benefits was 56% in 2013 and 55% in 2014, considerably lower than the percentage of MA-PD plans in 2013 (75%) and 2014 (73%) that offered dental benefits. Likewise the percentage of MA plans without drug benefits that offered all three additional benefits was only 32% in 2013 and 28% in 2014.

Medicare Advantage and Our Health Reform War

Medicare Advantage has re-emerged as a battleground in America’s ongoing political conflict over health reform. Republicans condemn the Affordable Care Act’s proposed reductions in Medicare Advantage funding while Democrats often portray Medicare Advantage as a program whose wasteful overspending must be constrained. Some in the media have advanced nearer the frontline of this battle than many politicians. For example, the Los Angeles Times recently published an article entitled “New evidence that Medicare Advantage is an insurance industry scam.” The author cited a solid work of research by three Wharton economists to support his conclusion that “Medicare Advantage is a ripoff that fattens the health insurance industry while scarcely helping its enrollees, all at public expense.” Likewise, a similar article published in Bloomberg used the same research to claim Medicare Advantage is “a program that mainly benefits insurers and the media companies that receive their ad dollars, on the grounds that it also helps senior citizens a little bit.”

Both articles failed to mention that the study they cited compared Medicare Advantage plans in urban versus rural counties. The study concluded less than half of the higher reimbursement rate for urban Medicare Advantage plans were passed through to consumers in the form of lower premiums, deductibles, or copayments. Of the hundreds of counties on which the study focused, 47% were urban. With respect to out-of-pocket costs among urban versus rural Medicare Advantage plans, the study clearly acknowledges that it “does not account for cross-region differences in practice patterns or price levels.” This latter point in no way invalidates the research but does raise the question of whether differences in rural and urban healthcare expense might have made some contribution to the results found by the researchers.

Ironically, the same week in which the Los Angeles Times and Bloomberg Medicare Advantage articles were published, HealthPocket released a study examining the three main insurance coverage options for people aging into the Medicare system. Using government data on healthcare and medication usage, HealthPocket calculated the estimated expenses for Original Medicare with drug coverage, Medigap with drug coverage, and Medicare Advantage. When annual premiums and out-of-pocket costs were combined, Medicare Advantage presented the typical Medicare enrollee with the prospect of 19% savings over Original Medicare with a prescription drug plan. The Medigap option was estimated to be 45% more expensive than Medicare Advantage.

These savings alone could defend Medicare Advantage from the characterization that the program is basically a scam that principally profits insurers. However, Medicare Advantage also provides an annual limit on medical out-of-pocket costs, a protection from catastrophic medical expenses absent from original Medicare coverage. Additionally, many Medicare Advantage health plans provide additional medical benefits beyond the coverage of original Medicare.

Does this mean that the Medicare Advantage program is above scrutiny or criticism? Hardly. Rather, HealthPocket’s cost comparison research is one of many competing assessments of Medicare Advantage. Taken together, existing Medicare Advantage studies depict a complex combination of costs and benefits with which politicians, the public, and the media need to wrestle. Should those parties prove unable to discuss Medicare Advantage in a statistically honest and nuanced fashion, it could be a troubling bellwether of America’s capacity to discuss more pressing and controversial aspects of healthcare, such as insurance coverage decisions based on clinical outcome statistics. And without such discussions, it’s less likely that America can realize its goal of controlling insurance costs and the healthcare expenses that shape them.

Why the Enrollment Story Hasn’t Ended

Along with the rest of America, I would like end of the ACA’s Open Enrollment Period to turn our collective attention to matters other than the endless political fighting over healthcare reform. Sports, international trade practices, the appropriate use of the Oxford comma – anything. However, April is the cruelest month and the stories associated with the inaugural enrollment period of the Affordable Care Act will not end any time soon. Here’s why:

  • Given the various enrollment extensions across the states, there will be a further increase in enrollment though no one yet has had the courage (including myself) to predict what the incremental enrollee volume will be
  • While the President spoke triumphantly of the 7.1 million enrollees, there remains the matter of how many enrolled will pay their premiums to activate their coverage and/or maintain it. I have heard industry insiders talk about 1 out of five new enrollees not paying their premiums. Consequently, it is a safe assumption that this matter will return to the news as data becomes available. My guess is that we’ll see significantly differing non-activation and attrition rates among insurance companies as opposed to a fairly uniform metric
  • How many more enrollees came from off-exchange brokers and insurance companies? Will these enrollees more than offset the exchange enrollment losses discussed above?
  • Who enrolled will be just as important as how many enrolled. Specifically, reporters and pundits will examine (quite legitimately):
    • How many enrollees are between 18 and 34?
    • How many enrollees were previously unable to obtain insurance privately due to pre-existing conditions?
    • How many enrollees were previously insured?

This last matter of the ‘previously insured’ will be a matter of considerable consequence inasmuch as a large part of the justification of our health reform legislation was insuring the uninsured. If the previously insured dominate enrollment, questions will be asked about the cost per uninsured when technology, advertising, and regulatory compliance expenditures are considered. Moreover, the previously insured may prove a ‘wild card’ inasmuch as they may judge the ACA by the degree to which their premiums went up or down.

The final subplot of the enrollment story won’t be available for some time. It is the matter of enrollee health. This year’s cost of medical claims from enrollees help determine the premiums for next year’s enrollees. In the market for privately purchased insurance, about 1 out of five applicants were rejected largely due to health considerations. With the Affordable Care Act, this population will be accepted by any health plan to which they apply. We won’t know how this population affects insurance costs for some time. My guess is that we’ll have our best understanding in 2016. The reason I say this is that many Affordable Care Act plans carry significant deductibles and, assuming a person doesn’t qualify for cost-sharing reductions, the deductibles will likely slow the rate of medical service usage until they are satisfied. After they are satisfied, I would suspect to see typical healthcare usage at that point. Insurance companies will not have a full year’s data when they have to set rates for 2015 and the prior year’s medical usage may be of limited value because of changes in enrollment demographics. Consequently, insurance companies will probably need all of 2014 medical claims along with data from 2015 to truly understand medical claim trends for the new ACA health plans.

Taken together, these lingering issues and unanswered questions about the Obamacare Open Enrollment Period will guarantee that it stays in the news well past the end of the last enrollment extension.

Medicare Advantage, Medigap, or Original Medicare

HealthPocket released our latest InfoStat this morning. The topic was a comparison of the annual premium and out-of-pocket costs for the three main insurance coverage options facing people who become eligible for the Medicare program:

We used government data to determine a profile of typical healthcare and medication usage within the Medicare-eligible age group. After determining the combined out-of-pocket and premium costs for this usage in each Medicare option, we found that Medicare Advantage had the lowest estimated annual costs while Medigap Plan F had the highest estimated annual costs.


For the full findings of the research as well as our usual caveats, see “Medicare Advantage Often Cheapest Option for New Medicare Enrollees.”


Differences in Premium Costs after Subsidies for Young Adults in Eight Cities

HealthPocket’s recent research focused on the income range at which young adults can qualify for premium subsidies in eight cities. Maximum incomes that qualified for premium subsidies differed by approximately $7,700 among the eight cities. On average the maximum possible income range for 18 to 34 year olds was 41% narrower than the maximum possible range of 100% to 400% of the federal poverty level stipulated by the Affordable Care Act.

In order to compare how premium costs after subsidies varied by age at different income levels, we calculated premium costs after subsidies of the least expensive bronze plan in each city for 18 to 34 year old individuals having incomes of 150%, 200%, and 250% of the federal poverty level.

Premium costs before subsidies for the least expensive bronze plans increased with age, but in all eight cities premium costs after subsidies for the least expensive bronze plans decreased from ages 18 to 34 for individuals having an income of 150% of the federal poverty level. However at 250% of the federal poverty level premium costs after subsidies in every city were higher at age 34 than at age 18. Below are charts of premium costs after subsidies of the least expensive bronze plans in each city for non-smoking individuals with incomes of 150%, 200%, and 250% of the federal poverty level.


At 150% of the federal poverty level, premium costs after subsidies for the least expensive bronze plans decreased an average of 85% from age 18 to 34 and 74% from age 24 to 34. The average decrease from age 24 to 34 did not include Houston, which had a cost of $0 from age 21 to 34. Three other cities also had a cost of $0 at age 34. Phoenix had the smallest premium cost decreases, 28% from age 18 to 34 and 13% from age 24 to 34.


At 200% of the federal poverty level costs after subsidies for the cheapest bronze plan decreased on average 24% from age 18 to 34 and 14% from age 24 to 34. Houston had the greatest decreases by percentage with 43% and 22% respectively, while costs for Phoenix increased 13% overall from age 18 to 34 but decreased 5% from age 24 to 34.


Costs for the least expensive bronze plan in every city increased from age 18 to 34 at 250% of the federal poverty level, with an average increase of 50%. However costs in five cities decreased from age 24 to 34, so on average there was a 0% change in costs from age 24 to 34. Costs in Phoenix increased 91% and 21% from ages 18 to 34 and 24 to 34 respectively. Philadelphia had the smallest cost increase from age 18 to 34 with 13%, while Houston had the greatest cost decrease from age 24 to 34 with 9%.

The differences between premium costs after subsidies for the least expensive bronze plans in the eight cities are based on differences in the premium costs before subsidies of the least expensive bronze plans in each city and the second least expensive silver plans for a non-smoker (the benchmark silver plans) in each city’s rating area. If an individual taxpayer had an annual income M less than 400% of the federal poverty level and was not eligible for coverage through a government program like Medicaid or Medicare, then the amount they would have to pay for premiums if they bought the benchmark silver plan would be a cost M*pM equal to the product of M and a percentage pM between 2% and 9.5% that depends on M.

If the benchmark silver plan had an annual premium cost before subsidies of S for individual enrollees at the taxpayer’s age, then the taxpayer’s annual subsidy if they bought the benchmark silver plan would be equal to the greater of 0 or S-M*pM, denoted by max(0, S-M*pM). If the taxpayer enrolled in any metal plan in the marketplace with an annual premium cost before subsidies of B, such as the least expensive bronze plan in their city, then the amount they would pay for the plan after subsidies would be max(0, B-max(0, S-M*pM)). Therefore for any taxpayers with the same income who are buying metal plans and receiving nonzero premium subsidies that do not fully cover the premium costs of their plans, the difference between their premium costs after subsidies would be equal to the difference in the quantity (B – S) between the taxpayers.

For example for non-smoking individuals in Atlanta with incomes of 150% or 200% of the federal poverty level, the annual premium cost after subsidies of the least expensive bronze plan for 34 year olds was $264 less than for 18 year olds. This cost difference was a result of the following factors:

1)   Both 18 and 34 year olds at 150% or 200% of the federal poverty level in Atlanta that bought the least expensive bronze plan would receive nonzero subsidies that did not cover the full premium cost of the least expensive bronze plan.

2)   In Atlanta the difference (B – S) between the annual premium costs of the least expensive bronze plan before subsidies and the benchmark silver plan before subsidies is -$289 for 18 year olds and -$553 for 34 year olds. These costs differ by $264.

For more information about income ranges in which young adults can qualify for premium subsidies, read the full results of 18-34 Year-Olds Can Face 41% Narrower Income Bracket to Qualify for Obamacare Subsidies at

Obamacare Approaching a Finish Line

The Affordable Care Act, also known as Obamacare, is approaching the finish line in the form of the Open Enrollment Period‘s conclusion. While various aspects of Obamacare were implemented before this time and more will be implemented afterwards, the Open Enrollment Period serves as a measure of progress for the Affordable Care Act. Pundits, politicians, and the press will likely use (or misuse) the final enrollee data from the open enrollment period to:

  • Infer public acceptance of the Affordable Care Act at the state and national levels
  • Evaluate the Affordable Care Act’s success toward its goal of reducing the uninsured population
  • Extrapolate costs relating to premium and out-of-pocket subsidies (though numbers will be needed on the percentage of enrollees who paid premiums and thus activated their health coverage)
  • Speculate on 2015 premium rates given the risk pool of 2014 enrollees

The last bullet point will be a game of “liar’s poker” unless information becomes available on the health status of enrollees. While there are trends regarding healthcare utilization of young vs. old, men vs. women, middle class vs. low income, etc., they remain trends that may or may not apply to the actual population of enrollees in Obamacare. The heath status of the actual enrollees in the inaugural open enrollment period will determine the medical claims that drive usage…for the most part. There is still the matter of deductibles and preventive care. Deductibles, as significant out-of-pocket costs, can potentially reduce the rate at which healthcare services are used during the deductible period. Preventive care, in some cases, can reduce overall medical claims if a potentially expensive condition is addressed at a nascent period.

Another variable that may affect premium rates is the percentage of new enrollees that were previously insured in the individual health insurance market. If there is a strong representation of the previously insured, this may translate to lower medical claims and lower premiums since the previously insured were sufficiently healthy to pass medical underwriting in the pre-reform individual health insurance market.



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