There is provision of ACA that is sure to change the way we talk about insurance for many years to come. That is the creation of the four metal tiers of insurance plans: Bronze, Silver, Gold, and Platinum. Henceforth, all health insurance offered in the US must fit within one of these categories.
The ACA sets an array of standards that all insurance policies must meet, whether they are sold on or off the exchanges. Because of that, the different metal categories will generally provide the same basic benefits. The difference between one metal tier another lies in how costs are shared between the insurance company and the patient. There has been a lot of number crunching, and there is enough flexibility that you will find some variations in how the plans are structured from one state to the next.
The Bronze will have the lowest premiums, but also shift more responsibility for payment to the insured: if you opt for Bronze, you will have a higher deductible and higher copays.
The system is built around the idea that Silver plans will be the most attractive option to most buyers, perhaps because they are structured to be very similar to the level of insurance that employers typically offer to their employees.
The Gold and Platinum plans have the highest premiums, but are structured with the lowest deductibles and copays. Because the subsidies are geared toward the Silver plan, buying Gold and Plan will mean paying a premium amount above the cap for your income level.
If you are fairly confident that you will qualify for a subsidy, then there are several good reasons why the Silver plan or even the Gold might be best for you, depending on your health needs.
But if you are paying full cost, in most cases, the Bronze plan is going to be the most cost effective.
Here is why:
1) Lower overall cost.
Obviously the premiums are lower for the Bronze, but you may be scared away by the deductible or amount of the copays. In California the Bronze policies on the individual exchange typically have a deductible of $5000; and copays (the amount you pay for insurance after the deductible is met) ranging from $60 for a regular doctor’s visit to $300 for an emergency room visit. For lab testing and high cost items like a hospital stay, you’ll pay 30%.
Let’s go back to that 60 year old in San Francisco we imagined in the “Falling off the Cliff” post, who faced an $800 premium for the Anthem Blue Cross Silver plan on a $47,000 annual income. Let’s call her Carol. Like other California Silver plans on the individual exchange, that plan has a $2000 deductible, and copays ranging from $45 to $250, with the patient paying 20% of lab and hospital fees.
But suppose that Carol instead opts for the Bronze plan from the same company, which is available for a monthly premium of $598. Now at first glance, Carol may be thinking that the $5000 deductible for the Bronze plan is very scary. It would be hard enough to pay a $2000 hospital bill — how would she ever manage $5000?
But look at the premium difference — and remember, in this example, Carol’s income is too high for her to receive any tax credit. The Silver Plan, at $800 per month, is $9,600 per year; the Bronze plan, at $598 per month, is $7,176 per year. So Carol will pay $2,424 more in premium dollars for that Silver plan.
The difference in deductibles between the two metal tiers is $3000. If Carol buys the Silver plan, by the end of the year she will have paid all but $576 of that in premium dollars. And those premium dollars are fixed monthly expenses that she is sure to pay. She can’t change her mind midway through the year and decide she wants the Bronze plan after all — she’s stuck until the next open enrollment period.
Or to put it another way, if Carol buys that “better” Silver plan, she won’t start to see a benefit from that plan until she has run up $4,424 of her deductible.
All insurance is a gamble. The insurance company is betting that your medical costs in a given year will be less than the premium dollars. Carol doesn’t want to get sick, but she gets a financial benefit from her plan only when the insurance company loses its bet that Carol will stay relatively healthy.
So if Carol opts for the Silver plan because its deductibles and copayments seem so much more reasonable, Carol can’t win financially unless she has actually has medical expenses approaching her deductible. If Carol is in relatively good health and typically does not have thousands of dollars in health care costs, then it is very clear that will save money with the Bronze plan.
2) The Impact of Maximum Out-of-Pocket Limits
But what if Carol has high costs? You might be thinking, a hospital bill can get pretty big, very fast. What if Carol gets ill, goes to the hospital, and is faced with a bill of $30,000. The Bronze plan requires her to pay 30% of that bill — with the Silver plan she’ll only have to pay 20% — a $3000 difference.
But here is the secret: Carol won’t have to pay 30% of the $30K bill ($9000) on the Bronze plan — the most she can possibly be asked to pay is $6350. That’s because every type of plan under ACA has a Maximum Out-of-Pocket of $6,350 for a single person. By the time Carol reaches the $5,000 deductible on the Bronze plan, she’s only $1,350 away from hitting that maximum. And once she reaches that maximum, her insurance has to pay 100% of the bill.
So for each metal plan there is a minimum payment and there is a maximum.
The minimum is the cost of the premium dollars for 12 months.
The maximum is the cost of the premium dollars plus $6,350 for an individual plan. (or $12,700 total for a family plan). 
So the maximum that Carol will pay out in a year under the Bronze plan $13,526. If she buys the Silver plan instead, her maximum is $15,950 — the same price differential as she started with. Either way, Carol pays $2,424 more to buy the Silver plan over the Bronze.
This is no accident and it isn’t new. It is how insurance premiums have always been structured. The insurance companies build the anticipated extra costs for a more generous plan into the premium. If insurance is a gamble, the insurance company is the House: they’ve tried to set it up so they always win. (Which isn’t a such a bad thing if you think about it: you certainly don’t want your insurance company going bankrupt because they’ve miscalculated the odds).
3) The Sweet Spot
There is one situation where Carol might do better with a Silver plan than the Bronze: if Carol has medical expenses that are higher than the cost differential between the plans, but lower than the maximum out of payment on the Bronze. That is, we know that Carol doesn’t start to benefit from the Silver until her medical costs equal the sum of her Silver deductible and the premium differential, or $4,424. We also know that the maximum she can possibly pay out on the Bronze plan is $13,526 — so if she has medical expenses roughly between those two figures she may come out ahead with the Silver.
Actually, there is a little more leeway on the high end, because after she hits her deductible on the Bronze plan, her insurance company starts to pay 70% of the costs. So in order to run up that last $1,350, she’ll have to incur about $4500 worth of expenses; she doesn’t actually top out in Bronze until the total medical bills – including the part that the insurance is now paying – come to about $9,500. So if you add in the insurance company’s share on the Bronze, that means that the top of the range where the Silver could be advantageous would be $16,526.
It’s a little more tricky to get exact figures to figure out where Carol is better off in that range, because we don’t know exactly what type of expenses she might incur and which copays might apply. But if we look at the simple differential between the 30% and 20% patient share of hospital and lab fees, then we can see this pattern:
When Carol’s expenses reach $4,424 on the Bronze, she is still paying 100% of her costs, whereas on the Silver she would be paying only 20% – so she is paying 4 times more for every dollar of care she is incurring at that point.
Once she hits the $5000 deductible, the differential changes: she is paying out $3 for every $2 she would have to pay for services on the Silver plan. So if her total expenses end up being $10,000, it could look like this:
Bronze: Carol pays $7,176 in premiums + $5000 deductible + $1350 maximum out of pocket. Total: $13,526
Silver: Carol pays $9600 in premiums + $2000 deductible + $1600 (20% of $8000). Total: $13,200
In this scenario she would have saved a little more than $300 if she opted for the Silver plan.
You can look at your own premium prices and do the math for your own situation. The math is always the same, but of course the specific numbers for premium amounts are different depending on your age and where you live. There will always be a middle range where you can realize modest savings on the Silver plan.
If you have no clue what your medical expenses will be for the coming year — then getting the Silver is probably is not a good bet for you. You’d be playing against the odds with only a chance of a very modest return.
But if Carol had a chronic medical condition with regular and predictable costs every year — if for example she could say with relative certainty that just about every year she would have at least $6000 of expenses but almost never more than $10,000 of expenses, then she might do better with the Silver plan.
But for most people, most of the time, that Bronze plan is going to come out less expensive in the long run.
This isn’t rocket science. It’s just how insurance companies turn a profit. They package their products in a way that is designed to entice most consumers into buying and paying for more insurance than they really need.
1) (Added 10/13/13): Note: in some states at some metal levels the maximum out-of-pocket may be lower — but it will never be higher than the amounts specified by the federal law, which will be $6350/$12,700 for 2014. These maximums can be adjusted for inflation and are likely to increase in future years.