A new Families USA study conducted by the Lewin Group looks at the impact of the out-of-pocket spending caps (for services that are part of the “essential benefits package“) that will be implemented by the PPACA as of 2014. The study is broken down on a state-by-state basis, and the Colorado report finds that there are 235,800 people in Colorado who live in families that will have out-of-pocket expenses in 2011 in excess of what the caps would be if they were in effect today.
The majority of the families impacted have at least one working family member, but people are far more likely to have out-of-pocket medical expenses in excess of the caps if they work for a business that employs fewer than 100 people – especially if the business has 25 or fewer workers. This makes sense, as the burden of providing group health insurance to employees has become a particularly heavy one for small businesses. As premiums have increased, small businesses have been forced to cut back on benefits: selecting higher deductibles, bare-bones policies, and in some cases, ceasing to offer health insurance all together.
The spending caps set by the PPACA are based on the out-of-pocket limitations for HSA-qualified policies, which increase by a small amount each year. There is also a provision to lower the caps for people with incomes below 400% of the poverty level, so the spending caps will exist on a sliding scale. Although the caps are not yet in place, the Lewin Group was able to use the current out-of-pocket limits for HSA-qualified plans to calculate how many people would be impacted if the caps were in place in 2011.
The spending caps will not eliminate all of the problems associated with large, unreimbursed medical bills. Services not included in the essential benefits package could still be charged to the insured without an upper limit. People who don’t have health insurance despite mandates will obviously have no protection under this rule. And lots of families would still find it difficult to repay health care costs that didn’t exceed the spending caps (currently $11,900 for a family, in addition to health insurance premiums). The sliding scale should help quite a bit however, reducing the burden of health care costs for most middle class families.
Although individual families will no doubt be helped by the spending caps, one does have to wonder who is going to pay the excess bills after the spending caps go into effect. On a national level, the Lewin Group found that in 2011, American families will have out-of-pocket spending on essential benefits services that exceeds the spending caps (if they were currently in effect) by $24.7 billion. The spending caps will be implemented via health insurance coverage, so health insurance policies will end up paying bills that exceed the caps. But health insurance carriers rely on premiums to collect money to pay claims. That $24.7 billion will have to come from somewhere, and the most obvious answer is that it will likely come from increased premiums to cover the higher claims costs.
This does seem more fair than our current system however, where out-of-pocket exposure can vary widely from one policy to another. The whole point of insurance is to pool money from lots of people to cover the claims that a few of them will have, and there’s no doubt that the increase in premiums for all of us will be quite small compared with the out-of-pocket savings experienced by those who have catastrophic medical claims. But although the spending caps will be beneficial to families that have large medical expenses, they do nothing to actually address the rising cost of health care, and the over-utilization that is also driving costs. This has been a recurring theme with a lot of the provisions created by health care reform: we’re finding ways to spread the costs in a more equitable fashion, but we’re not really addressing the fact that the total cost burden of health care in this country isn’t sustainable on its current trajectory, no matter how much we spread it out across the population.