Saturday, October 24, 2015

Surprise! Where silver plans are cheaper, more people buy them

Math test! Should you buy a health plan that costs $70 per month with a $5,000 deductible, or a plan that costs $90 per month with a $500 deductible?  Easy, right?

Try this one, then.  The plan with the $500 deductible costs $109 per month, versus three dollars per month for the $5,000 deductible plan.  Also factor in that the $5,000-deductible plan allows three doctor visits before the deductible kicks in. Not so simple  -- unless perhaps you know that you'll need a lot of medical care.

Those are actual choices facing 40 year-olds earning $23,000 and seeking solo insurance in 2015 in different regions of California's ACA marketplace, Covered California.  The first choice is between the cheapest silver and cheapest bronze plans available in half of Los Angeles County. The second is cheapest silver versus cheapest bronze in San Mateo.

The spread between deductibles for bronze and silver plans ($500 vs. $5,000) is so stark because a silver plan for a person earning $23,000 in 2015 is enhanced with Cost Sharing Reduction (CSR) subsidies -- available only with silver. Without CSR, the silver plan deductibles in both cases above would be $2,000. CSR-eligible buyers who choose any metal level but silver are leaving a valuable benefit on the table.

As for the spread between premiums, California enrollment data indicates that buyers are quite sensitive to it. In regions where the spread between cheapest bronze and cheapest silver is narrowest, more people buy silver and so access CSR (statewide, two thirds of buyers are CSR-eligible, as are 80% of those who select silver).

Covered California divides the state into 19 pricing regions. The charts below show typical bronze-silver price spreads* in 2015 in the six regions where bronze plan selection was highest among 2015 buyers and the six where bronze selection is lowest.

Prices are for a single 40 year-old earning $23,000. In regions with multiple pricing zones I quote prices for the most populous counties or zip code clusters.

Regions with highest percentage bronze selection

CA region
% buy bronze
% buy silver
Cheapest bronze
Cheapest silver
Price spread
Eastern Counties
$ 3
9 Monterey Coast
$ 95
1 Northern Counties
$ 79
Santa Clara
$ 84
North Bay
$ 95
San Mateo
$  1
Avg. - six regions
$ 93

Regions with lowest percentage bronze selection

CA region
% buy bronze
% buy silver
Cheapest bronze
Cheapest silver
Price spread
$ 90
$ 87
$ 91
$ 95
Avg. - six regions
$ 96

2015 prices for a 40 year-old earning $23,000 in the largest offering in each region.
Source: Covered California 2015 Active Member Profile. Prices from Covered California "shop and compare" tool

In six regions where the average bronze-silver bronze spread is just $48, just 26% of enrollees selected bronze vs. 64% silver. In six regions where the spread is nearly double, $93, bronze selection rises to 42% and silver drops to 51%.

Why is there such pronounced variation  in price spread, and so in bronze-vs.-silver selection?. In the ACA marketplace, premium subsidies are set so that everyone in the country with the same income (and same household size) pays the same price for the benchmark second-cheapest silver plan in her area.  If you're a one-person household and earn $23,000, you'll pay $118 for that benchmark silver plan wherever you live. What California's detailed county-level pricing data shows, though, is that prices can vary significantly for the cheapest silver plan, yielding a "CSR discount" to many buyers. So can the prices of the cheapest bronze plans, allowing for a wide variation in spreads between cheapest bronze and cheapest silver. The wider the spread, the stronger the temptation to buy bronze.

California's enrollment data demonstrates that buyers are very sensitive to that spread. Silver plans are hard for many to afford, particularly at the upper reaches of CSR eligibility (where the benefit itself also weakens).  Where the bronze-silver premium price spread is narrower, more people will buy silver and avail themselves of CSR. Where it's wide, more people will leave CSR on the table -- and let themselves in for a bronze deductible that's $5,000 in California (where metal-level benefits are standardized) and over $6,000 in most other zip codes across the country.

In a prior post, I contrasted silver and bronze takeup in two adjacent counties, Santa Cruz and Monterey, which had nearly identical numbers of enrollees but very different bronze-silver price spreads. There too, metal level selection followed suit, and far more people in the upper reaches of CSR eligibility bought silver in Santa Cruz than in Monterey.

CSR is strongest for buyers with household incomes under 150% of the Federal Poverty Level (FPL). It remains strong for buyers up to 200% FPL, fades to near-negligibility at 201-250% FPL and cuts off beyond that threshold. Statewide, 89% of buyers under 150% FPL selected silver, as did 79% of buyers in the 150-200% FPL range and 56% of those between 200% and 250% FPL. Among all active California enrollees as of June 2015 (including those who enrolled in 2014 and renewed), 65% selected silver and 25% selected bronze. While the regional numbers charted above don't break out metal level selection by income, silver selection is likely to be proportionately higher at lower income levels, as in the state at large. Statewide, 53% of enrollees are under 200% FPL, where CSR (and CSR takeup) is strongest.

In most areas of the country where I've checked ACA prices, spreads between cheapest- and second-cheapest silver are narrow, usually no more than a few dollars. The CSR discounts available in many California counties are, I think, pretty unusual.  They therefore offer a rare opportunity to gauge marketplace shoppers' sensitivity to price, and the extent to which they weigh premium against out-of-pocket costs.  On the other hand, the price spreads for cheapest bronze are wider than for cheapest silver. The availability of all-but-free bronze plans with sky-high deductibles may be a disservice to marketplace customers.

* Many of CA's 19 regions have multiple counties, and most have multiple pricing zones. Covered California's shopping tool makes it easy to check prices at a given zip code, income and age. For each region, I used price quotes from "dominant" zip codes -- that is, offerings from the most populous counties, or that were available in multiple counties or zip codes throughout the region.

A warning as of 10/23-10/24: CoveredCA's 'shop and compare' tool for 2015 has gone temporarily haywire. On 10/23, a CoveredCA spox told me that the site is being worked on, confirming that the prices listed for 2015 are out of whack and promising to let me know when they're fixed. I recorded the prices listed above around October 10.

Rational choice in the ACA marketplace -- Santa Cruz edition
The ACA's uncertain shield against underinsurance - a CSR compendium

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