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Prix fixe Obamacare: Deductible-only plans keep it simple

Last January, the vice president of product for a new, tech-oriented health insurer in New York approached the company's co-founder during a meeting to discuss strategy for the year.

"He pulled me aside and said, 'You say you want to make the health-care system simple,'" recounted Oscar Health co-founder Mario Schlosser. "Then he said, 'look at this,' and pulled out a chart of where we sit with all of our co-pays."

Doctor medicine
Peter Dazeley | Getty Images

Oscar Product VP Edward Segel was pointing out that the chart, with its confusing matrix of insurance plans featuring different co-pay amounts for doctors' visits and co-insurance rates, was anything but "simple" for the average health care consumer shopping for coverage.

"He said, 'How can we get rid of that?' " Schlosser recalled.

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Oscar's answer to Segel's question was to start offering last month what it calls "Simple Plans" on New York State's Obamacare exchange. In those plans, customers pay a monthly premium, and then are responsible after that for only a flat deductible amount. They don't have co-payments or co-insurance payments to worry about.

"You pay up to dollar figure 'x,' " Schlosser said. "After that, we take over 100 percent." The only exception is if a customer gets medical care outside of Oscar's network.

The plans' flat deductibles range from a high of $6,600 per person for so-called "bronze plans," to $4,500 for a silver plan, and then down to $2,000 for a gold plan and $1,000 for a platinum plan. The metal tiers reflect how much the plans, as opposed to the customer, pay for nonpreventative medical services after the deductible is satisfied: bronze plans cover the least, and platinum plans cover the biggest share of costs.

The response to Oscar's simple plans has been dramatic.

Schlosser said that in the first weeks of open enrollment for 2015 Obamacare plans in New York, which began Nov. 15, "two-thirds of the enrollments we've had have been in simple plans."

"I think they like the simplicity," he said of the consumers opting for the plans. "It's really straightforward. You have a real clear idea of what you owe, when . . . you know that if you do have hospital care, you know exactly what we're going to pay."

"You don't have these weird things where you pay up to your deductible, and then you have all this assortment of co-insurance or co-payments that will take you up to the out-of pocket maximum," he said. Co-insurance, in particular, is a notoriously difficult concept for customers to grasp. In that form of cost-sharing, a customer pays a percentage of the "allowed amount" of health services, and pays the co-insurance on top of any deductible they owe.

Oscar also took several steps to drive people to the simple plans, which are not sold in the company's market in New Jersey because that state has a $2,500 maximum for deductibles.

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First, Oscar's website steers potential customers to the simple plans, showing them those plans' prices and features after they answer several questions about themselves— ZIP code, how many people would be covered by the plan, ages, and household income. A customer has to click on a pull-down menu to look at other plans.

Secondly, Oscar sweetened the deal for customers who choose simple plans by covering, at no cost to the customer, two visits to their primary care physicians, as well as generic drug prescriptions. Oscar's so-called "standard plans" do not include those features.

Another big selling point is that the premiums are lower than the other plans Oscar offers. For example, a 35-year-old living in Manhattan would pay $395 per month for a simple silver plan with a $4,500 deductible, compared to $435 per month for a "standard" silver plan with a $2,000 deductible and a $5,500 maximum out-of-pocket limit.

Those premiums are the full retail price. Federal subsidies to offset the cost of premiums, and in some cases the cost of out-of-pocket expenses, are available to individuals and families who fall below certain income thresholds.

"This model is particularly attractive to consumers with low-to-no annual health-care use who are more worried about the costs of a heart attack or cancer than a visit to a doctor." -Kev Coleman, HealthPocket.com

While Oscar has had unexpected success so far with its simple plan option, flat deductible offerings are not unique in the health insurance world.

Kev Coleman, head of research and data for the insurance price comparison site HealthPocket.com, said an analysis of government data representing thousands of Affordable Care Act health plans nationally found that 22 percent had annual limits on out-of-pocket costs that are equal to their deductibles, meaning there were no co-payments or co-insurance fees for covered services after the deductibles were satisfied.

Coleman said flat deductible plans are: "Leave the consumer to pay out-of-pocket for routine doctor visits, lab tests and other care, but guard the consumer against medical events that could bring bankruptcy."

"This model is particularly attractive to consumers with low-to-no annual health-care use who are more worried about the costs of a heart attack or cancer than a visit to a doctor," Coleman said.

That point was echoed by Judimarie Thomas, a spokeswoman for Independence Blue Cross, a large insurer that serves Pennsylvania and New Jersey through an affiliate.

Independence's 14 health plan offerings in Pennsylvania for 2015 include just one flat-deductible plan, the Bronze Personal Choice PPO Reserve Plan, which has a $6,000 annual deductible.

"Many consumers did choose our Bronze" plan, "consumers that did not anticipate using a lot of health-care services," Thomas said.

But Gary Claxton, vice president of the Kaiser Family Foundation, the health policy research group, said the high deductibles seen in Oscar's simple plans and other comparable offerings by other insurers can be daunting for consumers.

"People don't like high deductibles," Claxton said. "A lot of people don't have a lot of cash."

But, Claxton noted, an attractive feature of high-deductible plans is that "you basically get about the cheapest premiums that you can get."

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"The other part is people know what their exposure is as long as they stay in network," he said. "It's something that you can understand more easily."

Asked why more insurers don't offer plans that have flat deductibles and eliminate the schedules of co-payments and co-insurance that can confuse consumers shopping for coverage, Claxton laughed.

"From an insurer's perspective, it's so the plans aren't directly comparable," he said. "They also want to load cost-sharing into different areas where they have different problems."

Also, he said, "they do consumer research and they know there's a certain section of consumers that are afraid of higher deductibles."