The Myth That the Individual Mandate Addresses Cost Shifting by the Uninsured, Part 2: “Bronze Plans” Are Not the Same As Catastrophic Coverage

One of the myths of the Affordable Care Act is that it designed to address the costs imposed on the health care system by uninsured healthy younger people who may incur unexpectedly high medical costs from, say, being hit by a bus, and who then shift these costs to those who have insurance.  As I have discussed previously, several commentators have suggested that Justice Kennedy could uphold the mandate on the limited theory that the mandate uniquely requires individuals to pay to cover their own “actuarial risk”—i.e., the chance that they will suffer an unexpected, catastrophic healthcare cost that they could not pay for out of pocket.

Among the flaws that I identified with this purportedly narrow defense of the mandate is that it is factually inaccurate:  Obamacare does not simply make people buy catastrophic coverage that would cover their own unaffordable risks at a price that reflects their actuarial risk;  instead, as several of the Justices recognized,  it makes them buy comprehensive policies for a wide range of services they don’t need in order to subsidize the law’s other costly requirements, at a price in excess of the actuarial risk that they pose to the system.  Rather than being a scheme to insure against the risk posed by younger persons, the Affordable Care Act creates a system of a government-mandated privately-administered redistribution of wealth from the young and healthy to older baby boomers.

An AP reporter, however, recently suggested otherwise, cobbling together several comments from “insurance experts” under the provocative headline “Supreme Court misunderstanding on health overhaul?”  According to the story, whereas the Justices “seemed to be under the impression that the law does not allow most consumers to buy low-cost, stripped-down insurance to satisfy its controversial coverage requirement[,]” “[i]n fact, the law provides for a cheaper ‘bronze’ plan that is broadly similar to today’s so-called catastrophic coverage policies for individuals.”

This story might be used by those desperately seeking a limiting principle for the mandate, but the story’s key factual contention is flatly false.  As Chief Justice Roberts and Mike Carvin both correctly pointed out during oral argument, even a “bronze” plan must cover a wide array of costly “essential health benefits”—including contraceptives, maternity and newborn care, counseling, physical therapy, preventive services and pediatric oral and vision care—that drastically exceed the types of unpredictable and unaffordable costs covered by normal catastrophic plans (and which might potentially result in cost-shifting).  As the article admits:

The health care law does impose a minimum set of “essential health benefits” for most insurance plans. Those benefits have yet to be specified, but are expected to reflect what a typical small-business plan now offers, with added preventive, mental health and other services.

That is precisely why premiums for bronze plans would cost between $4,500 and $5,000 per year under the Act (as estimated by the CBO), whereas true catastrophic plans are currently available for around $420 per year (as quoted online for a policy that covers a thirty-year-old nonsmoker, doesn’t cover preventative and other non-essential services, and carries a $10,000 deductible).

Thus, while the AP story emphasizes that “bronze” plans, compared to the other Obamacare plans, will have relatively high cost-sharing by the insured through deductibles, etc., that is utterly irrelevant:  compared to the catastrophic plans banned by the ACA, “bronze” plans will still cost roughly 10 times more than what is needed for healthy young people to internalize their own “actuarial risk.”  And the reason that the Act imposed all these costly and gratuitous “benefits” on young people who don’t need or want them—rather than allowing them to purchase insurance that would avoid “cost-shifting”—was for the avowed purpose of having healthy people significantly lower others’ insurance premiums by over-paying for their own insurance.

In this way, the proposed rationale for upholding the individual mandate does not match the actual statutory scheme.  Yet again, as with other theories, such as the Tax Power theory, defenders of the Affordable Care Act have to rewrite the bill in order to justify it.

UPDATE:  This from James Taranto:

“And here is the AP’s rebuttal:

The law’s bronze plan isn’t exactly robust coverage. It would require policyholders to spend thousands of dollars of their own money before insurance kicks in. That’s how catastrophic coverage works now.

It means anyone–particularly younger, healthy people–can satisfy the health care law’s insurance requirement without paying full freight for comprehensive coverage they may not need. . . .

On the surface, the minimum benefits requirement does seem to mandate comprehensive coverage. But another provision of the law works in the opposite direction, and the two have to be weighed together.

This second provision allows insurance companies to sell policies that have widely different levels of annual deductibles and copayments. A “platinum” plan would cover 90 percent of expected health care expenses, but on the bottom tier a bronze plan only covers 60 percent. Employer plans now cover about 80 percent.

Do you see the problem here? The AP is confusing a difference of degree (coverage at 60% vs. 80% or 90%) with a difference of kind (coverage of catastrophic vs. inessential services). Bronze-plan buyers would still have to purchase coverage for all the services the chief justice mentioned, it’s just that the policy is cheaper because the benefits are less.

The bronze catastrophic benefits are less, too, so that the ObamaCare policy would be a lousy deal for someone who needs catastrophic coverage but not all the mandatory bells and whistles.”