Standardizing Health Plan Benefit Design: Opportunities and Implications for States
In 2019, the Washington legislature enacted a bill requiring insurers on the state’s health insurance exchange to offer plans with standardized benefit designs, beginning in 2021. Colorado and Maryland are considering similar requirements. As these and other states consider the option of standardized health plans, they can benefit from the experiences of California, the District of Columbia (D.C.), Connecticut, Massachusetts, New York, Oregon, and Vermont, all of which require insurers to offer standardized benefit designs. This expert perspective outlines benefits and risks of plan standardization, and raises critical questions that states will need to consider, and offers a decision roadmap for states implementing a standardized benefit design requirement.
Why Standardize? Improving the Consumer Experience with Affordable Care Act Coverage
The Affordable Care Act (ACA) created health insurance exchanges in every state to encourage insurers to compete based on price and quality. The exchanges were required to maintain websites where consumers could make “apples to apples” comparisons among health plans, and shop with confidence that the plans available had been certified as meeting a minimum level of comprehensiveness and quality. States were given the primary responsibility to certify that participating health plans meet federal standards, as well as given flexibility to set additional plan standards of their own, such as requiring insurers to offer plans with standardized benefit designs.
The above-listed states have cited several reasons for requiring insurers to offer standardized plans:
Improving the consumer enrollment experience
Federal law requires all individual market insurers to cover a set of essential health benefits and offer plans that meet prescribed targets for coverage generosity, known as “actuarial value” (AV). These AV levels are set at Bronze, Silver, Gold, and Platinum, with the Bronze level being the least generous and Platinum being the most generous. Yet insurers retain considerable flexibility in how they design their plans to meet these targets, and the ACA does not limit the number of plans they can offer at each AV level. As a result, some consumers can face many hundreds of possible plan options, leading to what economists call “choice overload” and suboptimal enrollment decisions, or in some cases, a decision not to enroll at all. Standardizing benefit designs can help streamline consumers’ shopping experience and ease the “apples-to-apples” plan comparisons envisioned by the ACA.
Improving enrollees’ access to high-value services and prescription drugs
Furthermore, consumers in the exchanges tend to be extremely price sensitive, resulting in competitive pressure for insurers to set plan premiums as low as possible. To do so, they often must increase plan deductibles and other cost-sharing. The average Silver plan deductible in the exchanges was $4,375 in 2019. Yet increasing enrollees’ cost-sharing at the point of service can lead many to delay or forego needed care. Consumers may also become disenchanted with their exchange plans if they have to spend a considerable amount out-of-pocket before their coverage kicks in. States have used standardized benefit designs to require insurers to cover certain high-value services before the deductible, such as primary and urgent care visits and prescription drugs.
Improving the affordability of coverage
The majority of people enrolled in coverage through the exchanges receive premium tax credits (PTCs). The amount they receive to defray the cost of their premium is pegged to the premium for the second lowest cost Silver plan sold in their area. Under the ACA, Silver plans must have an AV of 70 percent, meaning that the plan covers 70 percent of the average enrollee’s costs. However, federal rules allow insurers to market plans at the Silver level if they come within a few percentage points of the 70 percent target. Specifically, if the plan has an AV of anywhere between 66 and 72 percent, federal rules deem it a Silver level plan. A 66 percent AV plan will have a lower premium than a 72 percent AV plan. States can use standardized plan designs to ensure that insurers offer plans at an AV level that will help enrollees gain access to more generous and affordable coverage.
Standardization Can Come with Some Risks, Challenges for States
In spite of some of the clear benefits of implementing standardized plan designs, the states that have done so have had to confront some critical questions, including:
- What’s the right amount of choice? Insurer stakeholders have argued that restricting their ability to design plans will hinder innovation and reduce consumer choices. Of the seven states that have required standardized plans, six allow insurers to offer non-standardized plans, too. Only California requires insurers to offer all standardized plans, inside and outside the exchange.
- What tradeoffs might be required? The ACA requires plans to be offered at specified AV targets. Meeting those targets while reducing cost-sharing for high-value services requires increasing consumer cost-sharing for other services. How to choose which services must face higher cost-sharing can be difficult, and will affect different patient populations in different ways. For example, a plan design that works well for a diabetic may not work as well for someone with cancer or the survivor of a heart attack.
- What kind and level of state resources will be required? It’s one thing to develop a standardized plan policy, it’s another thing to implement it. Standardized plans require:
- Staff and actuarial support to design plans that meet the AV targets, fit consumers’ needs, and satisfy relevant state policy goals.
- Engagement with insurer, provider, and patient group stakeholders to garner support for the policy and provide input on plan designs and implementation.
- Annual revisions to meet the AV targets, which are adjusted every year.
- Website updates to help consumers easily and effectively find and compare standardized plans.
- Consumer education to help consumers understand what standardized plans are, what they cover, and how to compare them.
Unfortunately, it can be difficult for states to assess the benefits and risks of requiring standardized plans, in part because there is a lack of data about how consumers shop for and compare plan options on the exchange websites, how enrollees access and use services under standardized vs. non-standardized plans, and whether standardized plans can improve consumer satisfaction and encourage more to enroll in and maintain exchange coverage. However, on a recent webinar for State Health & Value Strategies, state officials from D.C., New York, and Massachusetts reported that requiring standardized benefit designs can be a way to improve the consumer experience.
Leveraging Standardized Plans to Improve the Consumer Experience and a Decision Roadmap for States
On the webinar, officials from the D.C., New York, and Massachusetts exchanges discussed lessons they have learned since implementing standardized benefit designs as well as improvements they are planning for the future. For example, Massachusetts has used their standardized plans to improve enrollees’ access to medication assisted treatment for opioid use disorders. The state also has data suggesting that the standardized plans are helping consumers make decisions less on brand-name and more on the plan features important to them. New York requires insurers to offer Silver plans at no less than 70 percent AV in order to keep deductibles as low as possible. D.C. is making standardized plans a “major theme” in this year’s open enrollment marketing and outreach campaign, highlighting for consumers the greater availability of pre-deductible coverage. All three states are using standardized plans to improve consumers’ shopping experiences and the value of the coverage they ultimately purchase.
For states considering adopting a standardized benefit design requirement, there are many important decisions that can help ensure the state meets its policy goals. The decision roadmap below can be used to help guide policymakers and key stakeholders in the process.
Standardized Plan Designs: Decision Roadmap
|WHY?||Why should my state require insurers to standardize benefit designs?|
What policy goals are we trying to achieve?
|WHO?||Who will decide what the benefit designs will be? What data or evidence will they use to inform their decisions? How will we incorporate public input?|
Who will have to offer standardized plans? All individual market insurers? Only exchange insurers?
|WHAT?||Should we allow insurers offer non-standardized plans, in addition to standardized plans? How many plans at Bronze, Silver, Gold, and Platinum levels?|
What should the target AV level be for the standardized plans, and how will that affect premiums? How will it affect premium tax credits?
|WHERE?|| Where and how will standardized plans be described and displayed on the exchange website? Will they prioritized for consumers? How will consumers find and identify these plans? |
|HOW?||How will we know if the standardized plans are helping us achieve our policy goals? What data should we be collecting, how often, and how will we use that data to support future decision-making? |