Keeping It Simple: Health Plan Benefit Standardization and Regulatory Choice under the Affordable Care Act
Oechsner, Troy J., Schaler-Haynes, Magda, Albany Law Review
The recently enacted Patient Protection and Affordable Care Act ("Affordable Care Act" or "ACA") (1) provides federal and state regulators with an opportunity to address inefficiencies in the health insurance market. Health insurance markets in many areas of the country have a confusing array of benefit choices that make it difficult for consumers to effectively comparison-shop. This lack of transparency contributes to inefficiency in the market.
Rationales exist in support of encouraging a multitude of benefit choices. First, it allows consumers greater choice in finding a health insurance product that fits their needs. Second, it encourages health insurers to innovate new products and benefit designs. Third, the health insurance market, like other markets, works best when it is not overregulated.
Conversely, several rationales support standardizing benefit choices. First, as noted above, when consumers are faced with a confusing array of products, they may not be able to comparison-shop. As a result, the market does not efficiently arrive at correct pricing. Second, consumers tend to underestimate their own risk of illness and whether their insurance will cover needed medical services. This can result in tragedy for individual consumers, as well as costs to society, when the uninsured and underinsured cannot pay for medical care they receive. Third, a wide array of confusing benefit choices contributes to inflated administrative costs. For example, consumers, providers, and insurers dispute claims due to confusion over covered services. These inefficiencies in the health insurance market are among the many cost drivers resulting in increasing premiums.
Health insurance premium increases impact many people. For the majority of Americans who have coverage through an employer, high rate increases have resulted in decreased benefits. As employers struggle to pay premium rate increases, many have opted for health plans that provide less actual coverage. Employees see fewer benefits covered, with employers reducing or cutting drug, physical therapy, and other benefits. Employers are also shifting more costs to employees, with higher deductibles, co-payments, and coinsurance. And lower annual and lifetime maximum benefit caps have limited the amount of coverage on the backend. Consumers worry, for good reason, that their coverage will not be sufficient when they need it most. For those without health insurance, premium rate increases have contributed to making many of them uninsured. Rate increases put affordable, quality coverage further out of reach for the uninsured.
The consequences of being uninsured or underinsured are well documented. Those lacking coverage decline or delay care, resulting in worse health outcomes. And medical debt continues to be a leading reason for personal bankruptcy. (2)
The Affordable Care Act seeks to increase the quality and affordability of health insurance by layering together a number of core components, as described in Section V. Benefit structures are a key to the success of the commercial market reforms in the Affordable Care Act. The benefits in a health insurance contract determine which particular medical services will be covered, and to what degree. All states regulate health insurance policies to some extent, most often setting some minimum benefits for certain types of policies sold. However, most states have not standardized benefit choices, and there has been no basic set of national minimum standards. States have weighed competing arguments for benefit flexibility and choice, on one hand, and benefit standardization and uniformity on the other hand. With some notable exceptions, markets in most states reflect compromises that have resulted in a wide variety of benefit choices that are often confusing. These compromises have contributed to market inefficiencies and consumer underinsurance.
The Affordable Care Act reflects a distinct move towards greater standardization. …