Obamacare (officially the Affordable Care Act) may be the law of the land, but as a whole Americans -- and American businesses -- are still in the process of adjusting.
Obamacare shakes up the healthcare system
One of the biggest changes associated with Obamacare is the new minimum benefit requirements for health plans. With catastrophic health plans about to become a thing of the past, the new health plans add a number of additional minimum coverage benefits, such as expanded maternity and newborn care.
Additionally, Obamacare created a four-tier health plan system on its exchanges to make the plan selection and education process as simple as possible for the consumer. The metal tiers -- bronze, silver, gold, and platinum -- correspond to levels of coverage that a health insurance provider is responsible for compared to the responsibility of the plan member.
With a platinum plan, the insurance company covers 90% of medical costs while the member covers about 10%. With a gold plan, insurers cover 80% and the member 20%. This continues in a similar fashion, with insurers covering 70% of medical costs with a silver plan and 60% with a bronze plan. As you might imagine, there is some give and take within these plans -- bronze plans offer the lowest premiums, but the highest deductibles. Likewise, a platinum plan has the highest premiums, but usually a very small deductible.
Today, we'll take a brief look at Obamacare's platinum plans and discuss which consumers these plans are designed for, whether insurers can benefit from these plans, and which states platinum plans have been the most popular in.
Five states where Obamacare's platinum plans are the most popular
Let's take this in reverse by first looking at the five states where platinum plans have been selling the best. These states (and number of paying enrollees in parenthesis) are:
- California (64,316)
- Florida (60,555)
- New York (45,786)
- Texas (18,018)
- Georgia (16,014)
In total, 332,624 of the 9,949,079 paying enrollees in Obamacare were enrolled in a platinum plan as of June 30, 2014, or about 3%, according to the Centers for Medicare and Medicaid Services. As you can see, of the 44 states (plus Washington D.C.) where platinum plans are offered, the aforementioned five states make up the lion's share: 204,689 total platinum enrollees.
One reason platinum plans have sold higher quantities in these five states likely has to do with the larger populations of these states. However, it's also worth noting that platinum plans, which are typically targeted at more affluent customers, can certainly gain traction in states like California and New York where the cost of living is higher, or in Florida where the average age of residents is higher than anywhere else in the country (and thus the need for medical care is presumably higher).
Who exactly buys a platinum plan?
Where a platinum plan really comes in handy is for the individual who has a preexisting medical condition and plans to use their health insurance a lot.
There's no denying that platinum plans have the highest premiums of all plans, but your age also plays a big factor in determining your monthly premium. As Healthpocket.com noted in November 2014, the average platinum premium for a 30 year-old was $345 per month compared to $825 for the average 60 year-old. In short, you'll need to be prepared for a hefty premium payment if you're going to consider a platinum plan.
In return for these higher premiums, an individual can expect an average out-of-pocket cost of less than $2,000 per year. Compare that to some bronze plans around the country, with deductibles above $6,000 and some even approaching five digits, and you can see where the savings can come into play if you require a lot of medical care.
Can insurers benefit from platinum plans?
The big question, from the standpoint of an investor, is can an insurance company actually benefit from selling a platinum plan? Personally, I don't believe an insurer would put a product on the open market if they didn't believe they could eventually turn a profit on it. However, in the grand scheme of Obamacare's tiers, platinum plans appear to be the least favorable for the insurance company.
The good news for insurers that sell platinum plans is that they get a lot of premium money upfront. Even though Obamacare requires health benefits providers to use at least 80% of premium money received on medical care for their members, the bigger the pool of money received from plan members (especially upfront), the more potential for insurers to reap net income investment gains from short-term investment vehicles like U.S. Treasury bonds.
The downside to these plans is that they have relatively low deductibles. It essentially means that buyers of these plans are likely to utilize medical care a lot, and could potentially cost the insurer a lot of money since their out-of-pocket annual costs are lower than under any other health plan tier under Obamacare. Comparatively, bronze plan premiums are much lower, but the out-of-pocket limits for consumers are much higher, meaning it could be quite some time before insurers have to step in to cover a bronze member's entire medical costs. Ultimately, bronze and silver plans are the real bread and butter of health-benefit providers.
As Obamacare evolves it's possible platinum plans could gain more popularity, but don't look for insurers to promote them anytime soon.