Friday, June 13, 2014

More choice is coming to ACA exchanges. How much is too much?

Hooray! Based on the first state reports, more health insurers will enter more ACA state exchanges in 2015 than in 2014. In Illinois, for example, as Peter Frost reports in the Chicago Tribune, six insurers offered a total of 120 health plans in the state in 2014, whereas in 2015, eight companies (with ten brand names) will offer 306 plans.

That's good, right? Well, more competition should mean better prices, and perhaps force constructive creativity in plan design. From a consumer shopping standpoint, though, how much choice is too much? What will a state marketplace with 300 plans look like?

The first thing to recognize is that the market is different in each county, and no county will offer 306 plans. This year, with 120 plans sold in the state as a whole, Cook County, home of Chicago, had 65 plans on offer.* Other Illinois counties that I tested at random had between 36 and 51 plans.  (That's a lot. By my count, Los Angeles, CA had 36 plans on offer this year.) Extrapolating, Cook County may have 160+ plans posted next year, sorted into the four metal tiers plus catastrophic. 

If you've narrowed down to a chosen tier -- which should be the benchmark silver for most of the 85+ percent of ACA buyers who qualified for subsidies -- in Cook County you'll currently be confronted with about 20 plan options for the bronze, silver and gold tiers. There are, 21 silver plan options, and so perhaps there will be 50+ next year. The price variation is nearly 100%. At present, there are just three plans near the lowest price, ranging from $202 to $212 per month for an unsubsidized 35 year-old, before a 25% jump  to $251 for the fourth cheapest silver plan. Since subsidies are keyed to the second cheapest plan, subsidy-eligible buyers will eat all the price difference above that benchmark, and most probably will therefore hew pretty close to it.

In practice, then, barring anticipated high medical expenses, a subsidy-eligible buyer might this year find three choices within the commonest (but by no means universal) criteria -- and next year, perhaps seven or eight. For people with known expensive medical conditions, strong provider preferences, and/or a comfortable income, the choice may be considerably more complex (the truly affluent will probably buy outside the exchange, and so be faced with even more choice).

Health insurance decisions can be dauntingly opaque even for sophisticated buyers, as healthcare economist Austin Frakt demonstrated to me with an illustration from personal experience.  Frakt has also posted an overview of studies indicating that too much choice leads to less-than-ideal decision-making for seniors selecting Medicare Advantage and Medicare Part D plans. One study found that 15-30 choices was optimal for MA customers, at least as far as inducing them to select a plan goes. (That sounds like an awful lot of choices to me. I doubt anyone shopping the ACA exchanges has that many viable choices in their price range.) Another study found that only 5% of Medicare Part D buyers chose the plan that would most likely be cheapest for them, given their drug consumption patterns.

Frakt speculates that what's bad for the individual may be good for the risk pool, because if those with expensive drug needs bought the most generous plans, and those with minimal needs bought the cheapest, adverse selection might result.

Perhaps that's true in the ACA exchanges as well. One of the law's core goals, per its name, is to make insurance (and care!) affordable -- and choosing a plan that doesn't work for you, say by going for low premium when your out-of-pocket expenses are likely to be high -- cuts against that goal. On the other hand, adverse selection would raise prices for everyone, also undercutting affordability.
* Thanks to Larry Levitt of Kaiser for pointing me to this example on

UPDATE:  New HHS stats shed some light on how people narrow their choices on the exchanges.

No comments:

Post a Comment