Thanks to the Affordable Care Act, a.k.a. Obamacare, millions of people receive generous subsidies to cover the cost of health insurance. Some people, in fact, receive coverage for free, their monthly premiums paid in full by the federal government.
Unfortunately, even a small change in price can cause people to lose their coverage. That’s important because of plans by Republicans to reduce or eliminate subsidies.
How small of a price change matters? In Massachusetts, when monthly premiums rose from $0 to less than $10, about one in seven people lost their coverage.
How could so little money lead to such large changes in coverage?
You might think the explanation lies in basic economics—that even $5 or $10 a month is more than some people can afford. After all, many people who receive insurance subsidies have annual incomes near the federal poverty level.
But that answer does not cut it, mainly because everyone who lost insurance because of the $5 or $10 premium could have chosen a slightly less expensive plan and still gotten their coverage for free. You see, the federal subsidy is pegged to the cost of the second cheapest “Silver plan” in a person’s local marketplace. That means someone who pays $10 a month to be in the fourth cheapest plan could avoid that cost by switching to a less expensive one.
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You might think that behavioral economics offers a simple explanation for this loss in coverage. For example, some studies demonstrate that people are particularly, even irrationally, drawn to things that are free. I won’t dwell on that research, in part because I no longer trust the findings but, more importantly, because if people wanted free coverage, they could get it by switching plans.
Which leads to another behavioral economic explanation –that, through the power of defaults, people re-enroll in last year’s plan even when that plan is no longer free. However, while the power of defaults might explain why people stick with their choices rather than switch to free plans, it doesn’t explain why the $5 or $10 cost of their insurance causes them to lose coverage.
So what explains the loss in coverage? Before I give you an answer, bear with me for a quick quiz.
1. If you get health insurance through your employer, how do you make sure to pay your monthly premiums?
Answer: if you’re like most people, the premium is automatically deducted from your paycheck.
2. If you get Medicare, how do you make sure to pay your monthly premiums?
Answer: Medicare Part A, for hospital coverage, is free. Other Medicare coverage, for things like drugs and outpatient care, is automatically deducted from Social Security checks.
3. If you get Medicaid, how do you make sure to pay your monthly premiums?
Answer: People on Medicaid do not have to remember to pay their premiums because they typically do not face premiums to remain enrolled in the program.
4. Okay, now suppose you get an Obamacare plan. How do you make sure to pay your monthly premiums?
Answer: it does not come out of your paycheck or out of Social Security. That means you have to arrange for your premium to be deducted from your checking/savings account. That’s hard to do for many people, because being poor often means being un-banked – having no savings account, checking account, or even a credit card.
As shown in the picture below, there is a sudden drop in coverage starting in January, when that first check comes due.
The Trump administration needs to fix this. When people’s premiums change from nothing to more than nothing, and when they fail to pay those premiums in January, we should offer them a grace period. In addition, we should give them a chance to switch to a free plan, or to find a way to pay their new premium automatically.
No American should be one $10 oversight from losing coverage.
