Tackling “Analysis Paralysis”: New Federal Proposal Would Bring Standardized Benefit Design Back to the Federally Facilitated Marketplace

By Karen Davenport

Do you ever get frustrated trying to compare prices when there are too many variables and lots of choices? For example, airlines must show you a price that includes your ticket, taxes and fees—but prices can differ by departure time, fares might skyrocket before you buy your ticket, and the airlines add extra fees for checking a bag and picking your seat. Even using a fare aggregator site, it can be hard to make an apples-to-apples comparison. Similarly, while the Affordable Care Act’s health insurance marketplaces and consumer protections have significantly improved the experience of purchasing individual health insurance, consumers must still undertake the difficult task of comparing a potentially overwhelming number of complicated benefit and network designs when they shop for health insurance.

Simplifying the Consumer Shopping Experience Through Standardizing Plan Design

One of the Centers for Medicare and Medicaid Services’ (CMS) new proposals in the Notice of Benefits and Payment Parameters for 2023 may improve this situation. After a several-year hiatus, CMS proposed resurrecting and revising its previous initiative that encouraged health insurance companies selling plans in the federally facilitated marketplace (FFM), HealthCare.gov, to offer consumers standardized plan designs. This proposal would now require issuers that offer qualified health plans (QHPs) in the FFM, or in state-based marketplaces that use the HealthCare.gov platform, to offer standardized—and easily comparable—cost-sharing and benefit designs wherever they offer “non-standardized” plans. This means that for every insurance product, at every metal level, and in every geographic market an issuer offers non-standardized plans, they must also provide a standardized alternative. These standardized plans will, regardless of issuer, share common cost-sharing parameters, including deductibles, coinsurance, and copayments within their respective product and metal level.

CMS has followed this path before. During the 2017 plan year, HealthCare.gov consumers could choose a standard plan, based on the benefit and cost-sharing designs of the most popular QHPs in 2015, if issuers in their market chose to make this option available. Similarly, in 2018 , consumers could choose plans with deductibles and cost-sharing designs based on 2016 enrollment patterns if issuers opted to offer these plans. Issuers participating in the FFM have never been required to offer standardized plans; out of the nearly 40 states using HealthCare.gov at the time, consumers in only 20 states in 2017 and 14 states in 2018 had access to “Simple Choice” plans, with Simple Choice enrollment representing 5.4 percent and 6.8 percent, respectively, of total Marketplace enrollment in these states.

CMS has built on this experience by looking to the most popular QHP designs offered in the FFM in 2021 to develop two sets of standardized options for the 2023 plan year. These designs specify standardized deductibles, maximum out-of-pocket amounts, and coinsurance levels and copayment amounts for specific service categories across metal levels and actuarial values. For example, all “standard gold” plans would have a $2,000 deductible, $8,700 limit on annual cost-sharing, 25 percent coinsurance for emergency department visits, and a $30 copayment for primary care. These designs also specify which services are not subject to the deductible and establish parity for primary care, speech therapy, and occupational and physical therapy, as well as parity between office visits for mental health and substance use disorder services and lowest-tier medical and surgical outpatient visits. Finally, the standardized designs outline copayment levels for all outpatient prescription drug tiers. The second set of designs follows the same parameters, while also specifying that copayments for specialty-tier prescription drugs be no more than $150 at all metal levels, to accommodate state laws in Delaware and Louisiana on specialty tier cost-sharing.

How Would This Policy Change Impact Consumers?

CMS states in the preamble to the proposed rule that requiring issuers to offer standardized plans in the same categories and geographic markets as their other QHP offerings should simplify plan comparisons and foster more informed consumer decisions. Experience in other health insurance markets—such as Medicare supplemental insurance (Medigap) and in some state-based Marketplaces—has demonstrated that standardization can facilitate apples-to-apples comparisons. The California marketplace, for example, requires issuers to offer only plans with uniform benefit designs (including deductibles, cost-sharing, and which services are exempt from deductibles), focusing consumers’ decisions on price and provider networks. Other state-based marketplaces have also designed standardized plan requirements to exempt key services such as primary care from deductibles to improve care affordability and access.

It is not self-evident, however, that these proposed requirements will improve consumer decision-making. Psychology and behavioral economics research have shown that consumers may become paralyzed in the face of too many choices, resulting in fewer jam buyers or retirement savings programs enrollees, as two oft-cited studies illustrate. With an average of almost 108 plans per county on HealthCare.gov this year, many marketplace consumers may already experience “choice overload” as they evaluate health plans. The proposed rule could add to this surplus, since the presence of “non-standardized” plans triggers the rule’s requirement that issuers offer standardized plans within the same products, markets and metal levels; unless issuers drop some of their “non-standardized” plans, the total number of marketplace plans will increase under the proposed rule.

On the other hand, the presence of standardized plans and the ability to make clearer and simpler comparisons among this subset of plans might encourage consumers to enroll in these choices instead of the myriad of other plan designs. According to Washington State’s 2021 fall enrollment report, for example, 43 percent of new marketplace enrollees chose a standardized plan during the first year these plans were available. State experiences also demonstrate that limiting the number of non-standardized plans issuers may offer can simplify plan comparisons and consumer decision-making. While only California has limited issuers to offering only standardized plans, five other states—Connecticut, Massachusetts, Maine, New York, and Oregon—have restricted the number of non-standardized plans issuers may offer in their marketplaces. Issuers, consumer advocates, and state officials have identified this approach as an effective method for improving consumers’ plan shopping experience. While CMS has not proposed to limit issuers’ ability to offer non-standardized plans, the agency indicated it may consider this requirement in the future, which could further streamline consumer choices and reduce “analysis paralysis” among consumers.

Finally, CMS intends to distinguish standardized plans on HealthCare.gov using display techniques that highlight these options and would require web brokers and QHP issuers using direct enrollment pathways to do so as well. Using proven techniques to support consumer decision-making could make or break the underlying policy changes—previous research found that unless consumers have a variety of ways to distinguish between standardized and non-standardized plans, including visual support cues, filtering tools, and educational materials explaining the distinctions between standardized and non-standardized plans, the goals of clear comparisons and better-informed consumer decisions may remain unrealized.

Takeaway

As it proposes to relaunch standardized plans in the FFM, CMS has walked a careful line. By requiring issuers to offer standardized plans across products, metal levels, and geographic markets, the agency has moved beyond the previous policy of simply encouraging issuers to offer these options. On the other hand, citing a desire to limit market disruption and maintain plan innovation, CMS has chosen a different path from several state-based marketplaces that have successfully leveraged standardized plans to improve plan comparisons and focus consumers’ insurance shopping decisions by limiting non-standardized plans. Over time, consumers’ reactions, enrollment data, and other indicators will determine whether this middle path produces similar results.