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Catastrophic health plans are bad policy

One of the worst failures of the Affordable Care Act (ACA) is that, even with subsidies, the premiums and out-of-pocket expenses are unaffordable for far too many people. The trade group America’s Health Insurance Plans (AHIP) now proposes to make the premiums slightly more affordable by offering catastrophic plans with very high deductibles. But this would make accessing healthcare truly unaffordable for even more people, as cost sharing subsidies are available only for silver plans, but coverage of the proposed catastrophic plans would fall even below the lowest-level bronze plans.

Why would they do this? Could it be that they want to capture a portion of the market of the 31 million people who will still remain uninsured after ACA is fully implemented?

Who would actually select these plans with very high deductibles but lower premiums? Those with very low incomes who would struggle even with subsidized premiums might choose these plans if they consider their subsidized premiums to be “all that they can afford.” These are individuals who would be much more likely to forgo essential healthcare simply because they couldn’t afford their portion of the deductibles.

Very high income individuals might select these plans to insure against catastrophic losses while deciding to self insure against more modest medical costs. The problem with this is that it is a form of regressive financing of the insurance risk pools. Since average healthcare costs are well beyond the means of middle income families to pay for them, wealthier individuals need to contribute more to the collective insurance pools (as they would in a single payer financing system). The AHIP proposal for low-premium catastrophic plans would allow them to contribute less than average instead.

For healthy middle-income families there is a preference for the tradeoff of lower premiums for higher-deductibles – an observation confirmed by behavior in the individual insurance market before the enactment of ACA. Families that remain healthy will come out ahead, but those families that later face significant health problems often find that they will face severe financial hardship as well – even bankruptcy.

So the insurance industry is taking a position that they can increase their market, that they will not have to pay for routine medical expenses, and that they can lower their medical losses by paying only for the comparatively few individuals with high medical expenses. Little does it matter that they have the health coverage function backwards, in that the healthy and wealthy do very well but the sick and poor suffer. Limiting essential protection for the most vulnerable demonstrates again why the private insurance industry should be dismissed.

The insurance industry has been very successful in getting innovations that benefit themselves. This release by AHIP suggests that this is the beginning of another self-serving public campaign – this time to allow individuals to have (in marketing terms) “the choice of purchasing only the insurance they need” – a high-deductible catastrophic health plan.

Social solidarity takes another beating.

Don McCanne, MD, is senior health policy fellow at Physicians for a National Health Program. His widely read "Quote of the Day" commentaries on topical health policy issues can be found here. He lives in San Juan Capistrano, Calif.