Posted 10/10/11 on the Disease Management Care Blog
Enshrining a term only an actuary could love, the Affordable Care Act sets health insurance coverage on the basis of “actuarial value” (AV). A good summary can be found in this Consumers Union Health Policy Brief. As the Disease Management Care Blog understands it, AV is the percent of typical medical expenses that a health insurance policy will cover for a typical population. In other words, some individuals will have no out of pocket expenses (deductibles, coinsurance and limits) while other individuals will have end up paying for most of their services. When those expenses are rolled up over thousands of persons and compared to total health care costs, the percent left over is the “AV.”
Once the Disease Management Care Blog wrapped its head around the AV, it next tackled the ACA concept of the “essential health benefit” (EHB). This is the minimum package of covered services (outpatient, emergency room, maternity, hospitalization, medications, rehabilitation and the like) that a health insurer must include in its coverage plan. This will ultimately be defined in yet-to-be-determined federal regulations.
Now that we have the jargon nailed down, plans that fail to meet at least 60% of AV on the EHB will be excluded from the exchanges and ineligible for federal subsidies. 60% is “bronze” coverage, while 70%, 80% and 90% are “silver,” “gold” and “platinum,” respectively. This is important because not only did most members of Congress not understand AV (consumer costs) or EHB (coverage), but because both will determine the future cost of our nation’s health care bill.
The IOM has backed into the EHB, not basing it on notions of optimum health coverage but on affordability. It recommends that the basic affordable EHB be based on a survey of what istypically covered by an insurance plan that is purchased by a small business employer. With that as the baseline, the EHB be further modified (based on scientific evidence and public input) so that the premium ultimately matches 70% of the small business AV. According to John Iglehart writing in the New England Journal of Medicine, that could work out to be about $5000 per year for individuals and about $13,500 for families.
This is significant because the key underlying assumption of the ACA was that forcing everyone in the risk pool (with the Constitutionally suspect “play or pay” provision) with insurance rich in wellness, prevention and services like rehab, mental health and pediatric oral care would, by itself, drive down health costs.
The smart folks over at the Institute of Medicine respectfully disagree. They believe the best approach is to figure out what is affordable first and then define the insurance coverage second.
It’s finally happened. While it’s not explicitly stated, the Federal deficit has noisily bumped into the Affordable Care Act. The IOM has given the ACA’s supporters cover over the inconvenient intrusion of costs into coverage, affordability into access and reality into fantasy. Even if the IOM recommendations fall on deaf ears, DMCB readers can expect the the Federal budget’s problems to now and forever be part and parcel of the ACA.
Jaan Sidorov MD writes at the Disease Management Care Blog.