Vice President, Health Care Coverage and Access How Will the Affordable Care Act’s Cost-Sharing Reductions Affect Consumers’ Out of Pocket Costs in 2016? Sara R. Collins, Ph.D. Vice President, Health Care Coverage and Access The Commonwealth Fund Media Teleconference March 16, 2016

Exhibit 1. The ACA’s Cost-Sharing Reductions and the Study Health insurers selling plans in the marketplaces are required to increase the cost-protection of silver-level plans for people with low and moderate incomes. They must offer silver plans with a higher “actuarial value” ; i.e., they increase the average share of medical costs covered by a plan. They must also keep out-of-pocket cost limits below the law’s maximum thresholds, which are lower for low and moderate income people. Insurers design higher actuarial value plans through a combination of reduced deductibles, out-of- pocket limits and copayments. The U.S. Treasury reimburses plans for these reductions. To find out how these cost-sharing reductions affect people’s out-of-pocket costs, we pulled information about the second-lowest-cost silver plans in largest markets in 38 states using HealthCare.gov for hypothetical 40 year-old males with low and moderate incomes, and a higher comparison income. We used the HealthCare.gov out-of-pocket cost comparison tool to get a rough estimate of someone’s out-of-pocket costs for each plan at each income level. We used the tool’s definition of low, medium, and high users of health care services. In 2016, an estimated 7 million Americans may have plans with these cost-sharing reductions. In the largest markets in the 38 states using HealthCare.gov , we find that the cost-sharing reductions substantially lower projected out-of-pocket costs for people who qualify for them. The degree to which the reductions lower estimated spending varies widely by where people live and how much health care they use. This is primarily because insurers use deductibles, out-of-pocket limits, and copayments in different combinations to lower cost-sharing for eligible enrollees.

Exhibit 2. Summary of major findings In the largest cities in the 38 states using HealthCare.gov , the cost-sharing reductions substantially lower projected out-of-pocket costs for people who qualify for them. People who use the most health care will see the largest savings. The degree to which the reductions lower estimated spending varies by health plan and how much health care people use. This is primarily because insurers use deductibles, out-of-pocket limits, copayments and coinsurance in different combinations to lower cost-sharing for eligible enrollees. A majority of plans we analyzed exclude at least some services from deductibles (people do not have to meet their deductibles first), but there is wide variation in the number and type of service excluded.

Exhibit 3. Cost-sharing reductions lower peoples’ projected out-of-pocket costs, especially for those who use health care the most Median projected out-of-pocket costs, 40 year old male in second lowest cost silver plan, largest city in states using HealthCare.gov Annual Income Notes: HealthCare.gov; second-lowest silver plans for 2016 plans; 40-year old male non-smoker; largest city in state; The analysis includes 36 states that use the HealthCare.gov platform, excluding Alaska and Hawaii for the $17,000 category, and the 38 states that use the Healthcare.gov platform for the $25,000 & $35,000 categories.

Level of Health Care Use Exhibit 4. Projected out-of-pocket costs vary by plan among people with similar health care use Projected out-of-pocket costs, 40 year old man, $17,000 income in second lowest cost silver plan in largest city in states using HealthCare.gov LA OR TX AR DE KS MO NV NM NC WV FL GA IL MS MT IN PA NJ UT OH MS Level of Health Care Use Notes: HealthCare.gov; second-lowest silver plans for 2016 plans; 40-year old male non-smoker; largest city in state; The median includes 36 states that use the HealthCare.gov platform, excluding Alaska and Hawaii for the $17,000 category.

Exhibit 5. The cost-sharing reductions lower deductibles and out-of-pocket limits in silver plans Median deductible and out-of-pocket limits in second lowest cost silver plan in largest city in states using HealthCare.gov 40-year old male, non-smoker, in second-lowest-cost silver plan Notes: HealthCare.gov; second-lowest silver plans for 2016 plans; 40-year old male non-smoker; largest city in state; The median includes 36 states that use the HealthCare.gov platform, excluding Alaska and Hawaii for the $17,000 category, 37 states that use the Healthcare.gov platform for the $20,000 category; and the 38 states that use the HealthCare.gov platform for the $25,000 & $35,000 categories.

Exhibit 6. There is variation in deductibles across markets for second lowest cost silver plans Highest, median, and lowest in-network deductible amounts in the largest city in states using HealthCare.gov IN WI IN SC WI FL GA IL IO MS NV NC OH OK OR TN TX IN WI HI NV OR TN TX NJ HI TX TX Annual Income Notes: HealthCare.gov; second-lowest silver plans for 2016 plans; 40-year old male non-smoker; largest city in state; The minimum, median, and maximum amounts includes 36 states that use the HealthCare.gov platform, excluding Alaska and Hawaii for the $17,000 category, 37 states that use the Healthcare.gov platform for the $20,000 category; and the 38 states that use the Healthcare.gov platform for the $25,000 & $35,000 categories.

Exhibit 7. There is variation in the number and type of services that are excluded from the deductible in the second-lowest-cost silver plan Number of second-lowest-cost silver plans that exclude services from the deductible, in largest city in states using HealthCare.gov Health Plan Services Notes: HealthCare.gov; second-lowest silver plans for 2016 plans with deductibles; 40-year old male non-smoker; largest city in state

Second-lowest-cost silver plans for enrollees with incomes of $17,000 Exhibit 8. Different plan designs result in different out-of-pocket costs for low, medium and high health care users Second-lowest-cost silver plans for enrollees with incomes of $17,000 Virginia Beach, Virginia Houston, Texas In-network deductible $150 $0 Prescription drug deductible $250 Out-of-Pocket Limit $600 $2,250 Copays/Coinsurance Primary Care Visit $15 Specialist Visit $30 $10 Generic drugs $15 Copay after deductible $3 Preferred drugs 50% Coinsurance after deductible $8 ER visit 20% Coinsurance after deductible $100 Projected Out-of-Pocket Costs 2016 Low user of health care $72 Medium user of health care $403 $69 High user of health care Notes: HealthCare.gov; second-lowest silver plans for 2016 plans; 40-year old male non-smoker with an annual income of $17,000; largest city in state

Exhibit 9. Conclusions and Policy Implications In 2016, as many as 7 million Americans will have marketplace plans with cost-sharing reductions. These reductions are estimated to significantly lower out-of-pocket costs for enrollees. People who experience high health care costs will realize particularly large savings. If the plaintiffs in the House of Representatives vs. Burwell case prevail, families with low and moderate incomes will see their out-of-pocket health care costs climb. The variation in consumer out-of-pocket spending that we found in the study might be narrowed if health plan designs were more similar. Seven states currently require some standardization of plans sold in the marketplaces; the federal marketplaces will provide standard plan options for insurers to use in 2017.

Appendix 1. Assumed health care service use among 40 year old non-smoking males and females, Healthcare.gov Low User Medium User High User Male Female Doctors visits 1 3 4 7 13 18 Lab or diagnostic tests 6 11 Prescription drugs 2 5 28 32 Days in hospital Other medical expenses Minimal $100 $300 $10,300 $13,800 Source: HealthCare.gov

Premium contribution as a share of income Appendix 2. Cost sharing reductions, out-of-pocket maximums, and premium subsidies, marketplace plans, 2016 FPL Income Actuarial value: Silver plan Out-of-Pocket Limits Premium contribution as a share of income 100 - <138% S: $11,770 - <16,243 F: $24,250 - <33,465 94% S: $2,250 F: $4,500 2.03% 138% - <150% S: $16,243 - <17,655 F: $33,465 - <36,375 3.05%-4.07% 150% – <200% S: $17,655 - <23,540 F: $36,375 - <48,500 87% 4.07%-6.41% 200% – <250% S: $23,540 - <29,425 F: $48,500 - <60,625 73% S: $5,450 F: $10,900 6.41%-8.18% 250% – <300% S: $29,425 - <35,310 F: $60,625 - <72,750 70% S: $6,850 F: 13,700 8.18%-9.66% 300% – <400% S: $35,310 - <47,080 F: $72,750 - <97,000 9.66% 400%+ S: $47,080+ F: $97,000+ - Notes: FPL refers to federal poverty level. Income levels based on 2015 FPL. Actuarial values are the average percent of medical costs covered by a health plan. Premium and cost-sharing credits are for silver plan. Sources: Rev. Proc. 2014-62 (http://www.irs.gov/irb/2014-50_IRB/ar11.html), Final HHS Notice of Benefit and Payment Parameters for 2016 (https://www.gpo.gov/fdsys/pkg/FR-2015-02-27/pdf/2015-03751.pdf); 42 U.S.C. §18071(a)(2) (https://www.gpo.gov/fdsys/pkg/USCODE-2011-title42/pdf/USCODE-2011-title42-chap157.pdf)