Individual Insurance Market Premiums Cover Widely-Used Services

The individual health insurance market’s premiums mostly go towards highly utilized services, a Robert Wood Johnson study discovered.

“The requirement that these essential benefits be included in ACA- compliant nongroup insurance coverage increases premiums beyond what they would be if people could purchase plans covering fewer benefits,” the researchers wrote.

“This had made the requirements somewhat controversial and spurred interest in reducing or eliminating them among some insurers and policymakers; some have proposed allowing states to use waivers to reduce or eliminate essential health benefit requirements.”

The researchers sourced data from the Actuarial Value Calculator for Affordable Care Act individual health insurance market plans and from the 2017 Medical Expenditure Panel Survey Household Component. They observed healthcare spending for services that closely aligned with the ten essential health benefits.

By comparing benefit spending to the annual 2020 silver premium for a 40-year-old enrollee, the researchers could identify the approximate share of premium costs that each service or benefit consumed.

Using this approach, the researchers discovered that 40 percent of premium costs go towards office-based and outpatient hospital services. The highest share of enrollees utilized office-based provider services.

Meanwhile, inpatient care services consumed 20 percent of premiums. Even though only three percent of individual health insurance market enrollees used inpatient care benefits, these visits were costly. The average 40-year-old individual on a silver plan paid $1,154 annually for marketplace inpatient services.

Nearly 30 percent of premium costs (29 percent) went toward prescription drugs. The second highest share of enrollees used prescription drugs.

A small collection of services shared a sliver of the individual health insurance market premiums, namely maternity and newborn care (four percent of premium costs) as well as rehabilitative and habilitative services (one percent of premium costs).

Although this share of the premium only applies to certain people and the share is relatively small ($211 in premium dollars for maternity and newborn care and $84 in premium dollars for rehabilitative and habilitative care out of a $5,883 annual 2020 silver premium for a 40-year-old enrollee), it relieves families and individuals of an immense cost burden.

“Eliminating categories of care that account for even a small fraction of premiums leads to very high costs for people needing to finance that care themselves,” the study explained.

Only seven percent of premium costs went towards emergency services.

Apart from the share of premium costs, researchers analyzed benefit healthcare spending by estimating the cost of these services if they were not considered essential health benefits in the Affordable Care Act’s individual health insurance market.

“These estimates represent the premium cost associated with each essential health benefit if it was no longer required to be included in all nongroup insurance plans and only people using that type of care bought insurance for it,” the researchers explained.

“While such benefits would not be available in separate policies in reality, these calculations represent the average financing burden that would fall on people needing different types of care in a particular year should these costs no longer be spread broadly across the larger nongroup insured population.”

Inpatient care would be the highest cost burden for enrollees by far, if essential health benefits did not exist. A 40-year-old enrollee on a silver, individual health insurance market plan would pay $33,295 for the cost of an inpatient visit.

Maternity and newborn benefits were the second most expensive category. Enrollees might have to pay $16,852 for maternity and newborn care if individual health insurance market plans did not have to provide essential health benefits.

Specialty drugs made up the third most costly essential health benefit at $14,358. However only three percent of the individual health insurance market population uses specialty drugs. Because this counts as an essential benefit, a 40-year-old individual on a 2020 silver plan instead pays $418 annually to cover these costs.

“Health insurance is intended to spread the risk of medical expenses across a population, making access to needed services affordable and accessible,” the researchers argued.

“Because of significant year-to-year uncertainty in individuals’ and families’ medical needs, coverage for a reasonably broad array of essential services spreads these costs over time and across a heterogeneous population. Doing otherwise poses significant risk to people who have unanticipated medical needs and can place prohibitive financial burdens on those with significant health problems.”

However, although the premium dollars are distributed to cover a wide variety of needs, the researchers stressed that two-thirds of premium costs on the individual health insurance marketplace go towards “core components of insurance”—specifically, inpatient, outpatient, emergency, and office-based care.

These are all services that most enrollees access during the year and they make up about 66 percent of what enrollees pay for with their premium.

However, these essential health benefits could be eliminated. The court case Texas v. California, which recently went before the Supreme Court, could overturn the Affordable Care Act which established essential health benefits in the individual health insurance market.

Early on in the court case, the Department of Justice argued that essential health benefits—as well as the individual health mandate—were unconstitutional.

The Department of Justice has since stepped back from that position and the argument against the Affordable Care Act has been slimmed down to focus on the individual mandate’s constitutionality and severability and the plaintiffs’ standing. The Supreme Court will issue its decision by the end of the term in June 2021.