ACA insurance. what you need to know about forced shit insurance

[TexasTowelie]

74. I believe that a couple of corrections might be in order.

$10,000 expenses in a year -

Under the bronze plan, you pay the first $3,000. You pay 40% of everything else until your out of pocket costs hit $6,350. Since you already paid $3,000, there are $7,000 in bills remaining to be paid. 40% of $7,000 is $2,800 so the yearly max of $6,350 isn't hit yet. The total expenses would need $11,375 in total expenses to hit the yearly max (that's the $8,375 after the $3K deductible multiplied by 0.4 to get the $3,350 amount to hit the yearly max). Under the bronze plan for a $10,000 bill, $5,800 would be paid by the insured and $4,200 would be paid by the insurance company.

Under the silver plan, you pay the first $3,000. Since you already paid $3,000, there are $7,000 in bills remaining to be paid. 20% of $7,000 is $1,400 so the yearly max of $6,350 isn't hit yet. The total expenses would need $19,750 in total expenses to hit the yearly max (that's the $16,750 after the $3K deductible multiplied by 0.2 to get the $3,350 amount to hit the yearly max). Under the silver plan for a $10,000 bill, $4,400 would be paid by the insured and $5,600 would be paid by the insurance company.

Now what happens when the expenses are $15,000 a year?

Under the bronze plan in the prior example, we established that it takes $11,375 in expenses to hit the yearly max. In this instance the individual pays $6,350 and the insurer pays the balance of $8,650.

However, for the silver plan there is $12,000 in expenses to cover after the deductible and the insured is responsible for 20% of that amount. The insured will pay $5,400 ($3,000 + (0.2)X$12,000) and the insurance company will pay the remaining $9,600 (80% of $12,000). That's a difference of $950 or about $80/month.

Therefore, the questions that arise are what are the expected medical losses during a particular year (if someone has a chronic condition then using expenses from prior years are helpful) and what provisions one is willing to allow for the unexpected expenses (which is why people need insurance to begin with).

With all other things being equal and one is willing to take the risk of shouldering the burden of unexpected losses, then if the expected expenses are $3K or less then it makes sense to take the bronze plan. However, if the expected expenses are between $3K and $11,375 , then it makes sense to upgrade to a higher plan as long as the monthly premium difference is less than $140/month difference. If the expected medical expenses continue to increase, then the financial benefits of having the upgraded coverage plan decrease since the mid-range expenses between $11,375 and $19,750 are covered at 100% under the bronze plan versus 80% under the silver plan.

For example, what occurs if someone projects annual expenses of $20,000?

Under both the bronze and silver plans the threshold amounts have been met and the individual would pay the annual max of $6,350. So why would that individual choose the silver plan over the bronze plan when they can have lower premiums and the payouts on losses are capped at the $6,350? If all of the considerations and services offered by both plans are identical, then there isn't any incentive to choose the higher premium plans.

What all of this means is that some people will choose the wrong plan for their particular situation. Meanwhile, there are others that will recognize how perverse the system is and choose a bronze plan so that they receive any declared "visible" subsidy from the federal government and a separate "hidden" subsidy by playing the system.

With that in mind, why should people risk paying the additional premium for a silver policy when they really need to insure against a large catastrophic loss? Unless there are other benefits (e.g., larger provider networks), I don't understand why anyone would choose anything other than the bronze plans. It makes more sense to save the difference in premiums between the two different plans to self-insure (particularly if a medical savings account that accepts pre-tax contributions is available), or if one views the situation over the long term and realize that they only need to save one or two years to build that savings account.