[Medical Journal Editorial] Using Drugs to Discriminate — Adverse Selection in the Insurance Marketplace
Eliminating discrimination on the basis of preexisting conditions is one of the central features of the Affordable Care Act (ACA). Before the legislation was passed, insurers in the nongroup market regularly charged high premiums to people with chronic conditions or denied them coverage entirely. To address these problems, the ACA instituted age-adjusted community rating for premiums and mandated that plans insure all comers. In combination with premium subsidies and the Medicaid expansion, these policies have resulted in insurance coverage for an estimated 10 million previously uninsured people in 2014.1
There is evidence, however, that insurers are resorting to other tactics to dissuade high-cost patients from enrolling. A formal complaint submitted to the Department of Health and Human Services (HHS) in May 2014 contended that Florida insurers offering plans through the new federal marketplace (exchange) had structured their drug formularies to discourage people with human immunodeficiency virus (HIV) infection from selecting their plans. These insurers categorized all HIV drugs, including generics, in the tier with the highest cost sharing.2
Insurers have historically used tiered formularies to encourage enrollees to select generic or preferred brand-name drugs instead of higher-cost alternatives. But if plans place all HIV drugs in the highest cost-sharing tier, enrollees with HIV will incur high costs regardless of which drugs they take. This effect suggests that the goal of this approach — which we call “adverse tiering” — is not to influence enrollees’ drug utilization but rather to deter certain people from enrolling in the first place.
We found evidence of adverse tiering in 12 of the 48 plans — 7 of the 24 plans in the states with insurers listed in the HHS complaint and 5 of the 24 plans in the other six states (see theSupplementary Appendix for sample formularies). The differences in out-of-pocket HIV drug costs between adverse-tiering plans (ATPs) and other plans were stark (seegraphAverage HIV-Related Costs for Adverse-Tiering Plans (ATPs) versus Other Plans.). ATP enrollees had an average annual cost per drug of more than triple that of enrollees in non-ATPs ($4,892 vs. $1,615), with a nearly $2,000 difference even for generic drugs. Fifty percent of ATPs had a drug-specific deductible, as compared with only 19% of other plans. Even after factoring in the lower premiums in ATPs and the ACA’s cap on out-of-pocket spending, we estimate that a person with HIV would pay more than $3,000 for treatment annually in an ATP than in another plan.
Our findings suggest that many insurers may be using benefit design to dissuade sicker people from choosing their plans. A recent analysis of insurance coverage for several other high-cost chronic conditions such as mental illness, cancer, diabetes, and rheumatoid arthritis showed similar evidence of adverse tiering, with 52% of marketplace plans requiring at least 30% coinsurance for all covered drugs in at least one class.3 Thus, this phenomenon is apparently not limited to just a few plans or conditions.
Adverse tiering is problematic for two reasons. First, it puts substantial and potentially unexpected financial strain on people with chronic conditions. These enrollees may select an ATP for its lower premium, only to end up paying extremely high out-of-pocket drug costs. These costs may be difficult to anticipate, since calculating them would require knowing an insurer’s negotiated drug prices — information that is not publicly available for most plans.
Second, these tiering practices will most likely lead to adverse selection over time, with sicker people clustering in plans that don’t use adverse tiering for their medical conditions.
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