Eliminating discrimination on the basis of preexisting conditions is one of the central features of the Affordable Care Act (ACA). But there is evidence that insurers are resorting to other tactics to dissuade high-cost patients from enrolling, according to a study by Harvard’s School of Public Health. The findings suggest that many insurers may be using benefit design to dissuade sicker people from choosing their plans. A recent analysis of insurance coverage for several other high-cost chronic conditions, such as mental illness, cancer, diabetes, and rheumatoid arthritis showed similar evidence of adverse tiering, with 52% of marketplace plans requiring at least 30% coinsurance for all covered drugs in at least one class. Thus, this phenomenon is apparently not limited to just a few plans or conditions.

A formal complaint submitted to the Dept. of Health and Human Services (HHS) in May 2014 contends that Florida insurers offering plans through the new federal exchange had structured their drug formularies to discourage people with HIV from selecting their plans. These insurers categorized all HIV drugs, including generics, in the tier with the highest cost sharing.

Insurers have used tiered formularies to encourage enrollees to select generic or preferred brand-name drugs instead of higher-cost alternatives. But if plans place all HIV drugs in the highest cost-sharing tier, enrollees with HIV will incur high costs regardless of which drugs they take. This effect suggests that the goal of adverse tiering is not to influence enrollees’ drug utilization, but to deter certain people from enrolling in the first place.

Researchers analyzed adverse tiering in 12 states using the federal marketplace: six states with insurers mentioned in the HHS complaint (Delaware, Florida, Louisiana, Michigan, South Carolina, and Utah) and the six most populous states without any of those insurers (Illinois, New Jersey, Ohio, Pennsylvania, Texas, and Virginia).

Researchers found adverse tiering in 12 of the 48 plans — seven of the 24 plans in the states with insurers listed in the HHS complaint and five of the 24 plans in the other six states. There were stark differences in out-of-pocket HIV drug costs between adverse-tiering plans and other plans. Adverse tiering plan enrollees had an average annual cost per drug of more than triple that of enrollees in regular tiering plans ($4,892 vs. $1,615), with a nearly $2,000 difference even for generic drugs. Fifty percent of adverse tiering plans had a drug-specific deductible, compared to only 19% of other plans.

Enrollees may select an adverse tiering plan for its lower premium, only to end up paying extremely high out-of-pocket drug costs. These costs may be difficult to anticipate, since calculating them would require knowledge of an insurer’s negotiated drug prices — information that is not publicly available for most plans.

Second, these tiering practices are likely to lead to adverse selection, with sicker people clustering in plans without adverse tiering. Over time, plans offering generous prescription-drug benefits may see a large influx of sick enrollees, which would reduce profits and lead to a race to the bottom in drug-plan design. The ACA’s risk-adjustment, reinsurance, and risk-corridor programs provide some financial protection to insurers whose enrollees are sicker than average. But the existence of adverse tiering in 2014 suggests that selection opportunities remain. Furthermore, the reinsurance and risk-corridor programs will be phased out after 2016, which will only increase insurers’ incentives to avoid sick enrollees.

Price transparency is one approach to address unexpectedly high out-of-pocket costs for people with chronic conditions. Insurers could be required to list on their formulary each drug’s estimated price to the enrollee, based on the negotiated price and the copayment or coinsurance. However, price transparency would probably accelerate the adverse-selection process if adopted in isolation.

One would be to establish protected conditions in drug formularies. Medicare Part D has designated several protected classes of drugs, including those used for HIV, seizures, and cancer. A similar approach in the exchanges could set an upper limit on cost sharing for medications for protected conditions. Such a policy would reduce financial exposure for people with these conditions even if they chose sub-optimal plans. Other safeguards for protected conditions could also be implemented, such as limits on prior-authorization requirements.

An important additional step would be to require marketplace plans to offer drug benefits that meet a given actuarial value, meaning that the percentage of drug costs paid by the plan (rather than the consumer) would have to exceed a particular threshold. This level could be set at the actuarial value for a given plan (i.e., 70% for silver plans) or above it. In order to significantly increase cost sharing for one drug, an insurer would have to reduce cost sharing for another drug. This step is crucial because it encompasses treatment of all health conditions, not just protected conditions and addresses non–formulary-based methods of passing costs on to consumers that may induce adverse selection (e.g., drug-specific deductibles), according to the report.

Stopping adverse drug tiering will not completely eliminate discrimination in the insurance marketplace. Some insurers will think of new ways to dissuade sick enrollees from joining their plans. Eliminating premium discrimination on the basis of health status was one of the ACA’s chief accomplishments in the non-group insurance market and one of the law’s most popular features. Preventing other forms of financial discrimination on the basis of health status — with the attendant risks of adverse selection in the marketplace — will require ongoing oversight, according to the report. The ACA has already made major inroads in designing a more equitable health care system for people with chronic conditions, but the struggle is far from over