The value of coverage, literally…

The other big debate in Senate Finance Committee was on amendments by Republican Senators Grassley and Kyl about whether health reform should set a basic minimum for the actuarial value of health insurance plans. This was a big deal discussion that we felt compelled to tweet at After wall, if we are going to have “universal coverage,” you need to define “coverage” as to be meaningful.

Senator Kyl and Grassley’s case was that such a standard would be a government intrusion that would limit choice in the marketplace, including many products that many people have chosen now. Senators Kyl and Grassley indicated how some states have significant percentage of people with plans that have actuarial values of 40%, 50%, 60%–less than the 65% minimum in the Senate Finance Committee bill.

Just to be clear, Kyl sought to allow insurers to continue to sell “junk” plans that cover less than half of the costs that an average patient would incur.

In rebuttal, Senator Baucus called such plans with lower actuarial value of 65% “pseudo-insurance.” He said Kyl’s amendment is an “amendment for the status quo,” since it would allow “terrible plans” in the marketplace, and allow insurers to “take advantage of people.”

Frankly, the minimum standard should be higher than 65%, even for the “bronze” plan. Can you imagine paying premiums and still facing 35% of costs after a significant medical incidence and expense?

As described by the Senate Finance Committee staff, there is a need to strike a balance between the affordability of the premium on front end, and meaningful coverage (and signifincant costs) on back end. Some people will want comprehensive coverage *(“gold”) that covers over 90% of their medical costs, others will save on the premium even if it means taking a risk of larger costs if medicaly expenses are incurred. But at a certain point the premium no longer becomes worth it, and the coverage is just providing a false sense of security.

While that ideal balance is probably closer to 75%, it is important to note, as Senator Grassley did, how much of our current markets are full of these products that provide little value. Think of the plans near the 65% minimum (“bronze”) as subprime coverage. The “junk” plans below 65% actuarial value are the predatory lending of health insurance.

Senator Bingaman helpfully brought up the issue of the “underinsured,” that the point of the bill was not just to cover the insured but provide greater security and help to the underinsured.

Why is this important? Because so many low- and moderate-income people live paycheck to paycheck, have debt in everything including credit cards and mortgages. As our study from a few years ago indicated, around 1/2 of families have $5-10K or less of assets outside their home ( So low- and moderate-income families are at risk of bankruptcy and/or losing home if key benefits not covered, or if cost-sharing too much.

If this sounds like the debate here is California around AB786 (Jones), held on the Senate floor until next year, you are right. Even some of the clarifications are the same. For example, Senator Conrad had to correct Kyl, to say: The bill doesn’t limit us to only 5 plans, there would be lots of variation within 5 categories. (Like AB786 in CA)

Another side issue was that since the plan wants to allow people to keep the coverage they have, it would grandfather allowing people to keep the plans they have, even if they are under the minimum standard, but that those plans could not be sold to new patients. It’s not ideal, but is a start from the sad state of affairs in the current individual market.

Health Access California promotes quality, affordable health care for all Californians.

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