Preventive Care and Actuarial Value
Under healthcare reform, women’s preventive services will be covered at no direct cost to women. The Heritage foundation writes:
In addition, mandated coverage of preventive services with no cost-sharing will increase health care costs, since cost of services will simply be passed from the insurer to the patient through higher premiums.
This is only entirely true in the large group market. In the individual and small group markets, other health benefits may end up being cut to compensate.
The key is in the restriction that *every* plan (on the Exchange or otherwise) must meet a particular actuarial value, say 60%. What that means is that health plans must pay, on average, 60% of the cost of covered services.
Let’s assume that the Obama administration rules boost preventive service utilization up to 10% of total services (a nice round number). Let’s further assume that these services must be paid for at 100%. In order to comply with an overall actuarial value of, say, 60%, health plans will need to cover all non-preventive services at a rate of 50/90=55.6%.
In this manner, premiums for the 60% actuarial value plan don’t go up. What you have done is to take from the sick and give to the healthy. Specifically, the health plan can’t even pay 60% of the cost of other diagnostic imaging, cancer treatments, etc. They have to reduce their effective cancer coverage in order to boost the detection of that coverage via preventive services.
[Note: through indirect and highly speculative conversations, I understand that HHS may be considering an actuarial value model that is so crude as to not be able to capture the above effects. To the extent our federal government is not going to calculate actuarial values correctly with respect to this issue, then the Heritage analysis may end up being more correct in all markets.]