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November 12, 2021

What Can the Federal Government Learn From States About Health Insurance Plan Standardization?

Author Affiliations
  • 1RAND Corporation, Santa Monica, California
JAMA Health Forum. 2021;2(11):e213478. doi:10.1001/jamahealthforum.2021.3478

On July 9, 2021, President Biden signed an Executive Order on Promoting Competition in the American Economy.1 Within that order, the White House included a directive to the Department of Health and Human Services (HHS) to standardize the plans sold through the National Health Insurance Marketplace.

The Marketplaces, established by the Affordable Care Act, are centralized repositories where individuals looking for health insurance plans on the individual market can go to comparison shop, enroll in coverage, and apply for subsidies to help pay for their coverage. Thirty states let the federal government run their Marketplaces (known as federally facilitated Marketplaces) and an additional 6 states manage their own Marketplaces but rely on the federal website for eligibility and enrollment activities.2 The remaining 14 states and the District of Columbia have state-based Marketplaces and perform all of the necessary functions at the state level. As of February 2021, almost 11.3 million individuals were enrolled in Marketplace coverage.3

In 2019, the average consumer shopping on HealthCare.gov faced choosing among 26 plans.4 While Americans value choice, research in behavioral economics and psychology has shown that people struggle with the decision-making process when they encounter too many choices and end up relying on biases and quick tricks, also known as heuristics, to cull their options and help them make a decision. This can lead individuals to choose a plan that may not be the best for them. With health insurance, the decision can be particularly challenging, and mistakes can be costly, leading individuals to pay higher premiums and spend more out of pocket when they seek care. In one analysis of Marketplace plan enrollment gone wrong, poor choices cost individuals on average an extra $1200 a year in premiums and left them facing $1900 higher deductibles.5

The Affordable Care Act requires that Marketplace plans be categorized by metal tiers (bronze, silver, gold, or platinum) that align with actuarial value—or how much an individual can expect to pay out of pocket when receiving care. In general, lower metal-tier plans have lower premiums but greater cost sharing. Insurers selling plans through the federally facilitated Marketplace have great flexibility in how they reach the cutoff points for each metal tier. For example, in 2021, two silver plans sold in Kentucky offered wildly different benefit designs: one had a $3000 deductible and 10% coinsurance after the deductible, while the other had a $6000 deductible and fixed copayments after the deductible (eg, $35 for primary care and $70 for specialist visits).

In addition to the metal tiers, the Affordable Care Act established essential health benefits that must be covered for a plan to be considered a qualified health plan that can be sold through the Marketplaces. However, beyond these initial design requirements, the federally facilitated Marketplace has enacted few rules limiting the benefit design of plans sold through HealthCare.gov.

By comparison, California has set strict rules for insurers in the state’s Marketplace, also known as Covered California. There, plans are standardized at the metal level, which means plans in the same tier have the same covered benefits and out-of-pocket costs, including any deductible, copayments or coinsurance, and out-of-pocket maximum amounts. This allows consumers to focus on only a few, more easily understandable, components of plans in the same metal tier when assessing the differences across them—namely the plan’s network of clinicians and health care facilities, its monthly premium, and the insurance company offering it. California also restricts the number of plans an insurer can sell in the same metal tier. Insurers can only sell 1 plan with a given network in each metal tier. This requirement limits duplicative plans that do not offer meaningful differences to consumers and serves to make the plan comparison process easier.

In addition to California, 7 other states and the District of Columbia require insurers selling plans through the Marketplace to offer plans with a standardized cost-sharing design.6 Again, these states standardize cost sharing within metal tiers. Some states include more than 1 standard design for a metal tier. In Massachusetts, for example, each metal tier has a “high” and a “low” standard option, where the high option has greater out-of-pocket cost protections for the consumer than the low counterpart. All states except California allow nonstandard plans to be sold as well, but several join the Golden State in limiting the number of plans that an insurer can sell on the Marketplace.

Similar standards have been set in the Medicare Part D market. There, the Centers for Medicare & Medicaid Services (CMS) limit the number of plans each insurer can sell in a region. Additionally, each of these plans must be meaningfully different from each other, unless the plans offer enhanced benefits (above and beyond what CMS includes in the standard benefit package); these enhanced plans do not need to be meaningfully different.7 The goal, again, is to make sure that there are significant differences between plans and to limit overburdening consumers with too many plans to choose from.

Without greater standardization, the use of metal-tier labels alone cannot successfully convey helpful information to consumers about the plans. For example, because of the immense amount of latitude that insurers have when designing plans in states where standardization is not required, in 2021 in North Carolina there were several instances where lower metal-tier Marketplace plans (ie, bronze or silver) had lower premiums, deductibles, and out-of-pocket maximums than higher-tier, gold Marketplace plans.8 Prior research has found that consumers rely heavily on metal-tier categorization regardless of the meaning behind the label.9,10 In the case of North Carolina, this reliance on the metal-tier label may have led some individuals to choose the more expensive gold plans despite the availability of lower-cost, more generous options in the other tiers. In a Marketplace where all of the plans are standardized, this would be less likely to happen because the trade-offs between premiums, deductibles, and out-of-pocket maximums would be very clear.

The move by the Biden administration to direct HHS to increase plan standardization has the potential to improve the shopping experience for the millions of Americans with coverage through the Marketplaces. In determining how to standardize the plans sold through HealthCare.gov, HHS should learn from what states like California and federal agencies such as CMS have done to standardize Marketplace and Part D plans. To limit choice overload and ease the decision-making process for enrollees, HHS should consider replicating what Medicare and Covered California have done by requiring plans sold by the same insurer to be meaningfully different from one another. Standardizing plans’ cost-sharing designs within metal tiers is another important step that allows consumers to compare their options more easily while also reducing the likelihood that objectively inferior plans are available. On the other hand, the federal government should avoid allowing nonstandard plans to be sold alongside standardized plans, as several states and Medicare have done. Including these nonstandard plans in the market would complicate the plan comparison process and be counterproductive to the goals of plan standardization. Overall, making the enrollment process easier would produce several benefits, including reducing costly enrollment mistakes, improving customer satisfaction, and minimizing consumer burden.

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Article Information

Published: November 12, 2021. doi:10.1001/jamahealthforum.2021.3478

Open Access: This is an open access article distributed under the terms of the CC-BY License. © 2021 Rasmussen PW et al. JAMA Health Forum.

Corresponding Author: Petra W. Rasmussen, RAND Corporation, 1776 Main St, m4242, Santa Monica, CA 90401 (prasmuss@rand.org).

Conflict of Interest Disclosures: The authors have no conflicts of interest to disclose.

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