In 2015, I spent some time tracking the effects of "CSR discounts" in select ACA marketplaces -- that is, discounts on the Cost Sharing Reduction subsidies offered to low income enrollees (i.e., most enrollees to date) when they buy silver plans -- and only silver plans.
Since the ACA's income-based premium subsidies are set according to the price of the benchmark second cheapest silver plan in a given area, a "CSR discount" is available when the cheapest silver plan has a significantly lower premium than the benchmark. Such a discount lowers income shoppers' temptation to buy bronze plans, which are much cheaper but have sky-high deductibles and no CSR.
Large CSR discounts are not the norm in the ACA marketplace, but they're not rare either. I found some evidence, across California and in two adjacent CA counties, that where the discount is significant, silver plan selection rises.
My interest stemmed from a concern whether most low income buyers in the marketplace were likely to obtain coverage adequate to their needs -- in shorthand, obtaining plans with deductibles in the $0 to $750 range (the range CSR-enhanced silver plans for those with incomes up to twice the poverty level) rather than in the $5000 to $6850 range (typical of bronze plans). Richard Mayhew, a health insurance professional, shares that interest but also homes in on the effects of various price configurations on insurers' health. With two thirds to three quarters of insurers in the ACA marketplace posting losses there, and a quarter of last year's participating insurers exiting the market, that concern must be shared by all who want to see the marketplace function as designed.
In many cases, insurers who fielded the cheapest silver plans, often with a substantial CSR discount, won huge market share and suffered huge losses, as large numbers of low income enrollees with pent-up medical needs signed on. Conversely, many insurers who offered more expensive plans with more robust provider networks also lost money, attracting mainly sicker enrollees willing to pay more for greater provider choice.
A lot of this had to do with pricing -- underpricing plans, and over-paying healthcare providers. Insurers whose primary business is managed Medicaid, who put up narrow network plans probably paying near-Medicaid rates to providers, managed to make profits on low-priced plans, whether or not they offered CSR discounts. In many cases they did not, instead posting a half dozen silver plans that were much cheaper than any competitors'.
Today Mayhew focuses on a natural experiment generated by the lack of competition in many ACA markets -- about 20% of the population lives in counties that will have just one marketplace insurer in 2017. In Tennessee, Mayhew notes, Blue Cross Blue Shield is the only insurer in about half the state (geographically speaking, and including Chattanooga) -- and it's offering an enormous "CSR discount." Humana, the sole insurer in another large swath of the state (including Knoxville), offers no discount -- in fact, it offers just one silver plan. There's a similar difference in the spread between benchmark silver and cheapest bronze in the two insurers' offerings. Mayhew illustrates the effects as follows:
Insurers also compete on administrative efficiency, customer service, their ability to motivate or demand coordinated and cost-effective care, and their ability to maximize -- or game -- risk adjustment -- as well as on provider rates and network size and quality -- flip sides of one coin. In the long term, competition is probably essential to generating improvement in these interconnected arenas. This year, however, the danger to the marketplace probably stems more from the monstrous premium corrections in some markets than from a lack of competition per se. In fact, competition drove the unrealistic pricing in the first place.
Since the ACA's income-based premium subsidies are set according to the price of the benchmark second cheapest silver plan in a given area, a "CSR discount" is available when the cheapest silver plan has a significantly lower premium than the benchmark. Such a discount lowers income shoppers' temptation to buy bronze plans, which are much cheaper but have sky-high deductibles and no CSR.
Large CSR discounts are not the norm in the ACA marketplace, but they're not rare either. I found some evidence, across California and in two adjacent CA counties, that where the discount is significant, silver plan selection rises.
My interest stemmed from a concern whether most low income buyers in the marketplace were likely to obtain coverage adequate to their needs -- in shorthand, obtaining plans with deductibles in the $0 to $750 range (the range CSR-enhanced silver plans for those with incomes up to twice the poverty level) rather than in the $5000 to $6850 range (typical of bronze plans). Richard Mayhew, a health insurance professional, shares that interest but also homes in on the effects of various price configurations on insurers' health. With two thirds to three quarters of insurers in the ACA marketplace posting losses there, and a quarter of last year's participating insurers exiting the market, that concern must be shared by all who want to see the marketplace function as designed.
In many cases, insurers who fielded the cheapest silver plans, often with a substantial CSR discount, won huge market share and suffered huge losses, as large numbers of low income enrollees with pent-up medical needs signed on. Conversely, many insurers who offered more expensive plans with more robust provider networks also lost money, attracting mainly sicker enrollees willing to pay more for greater provider choice.
A lot of this had to do with pricing -- underpricing plans, and over-paying healthcare providers. Insurers whose primary business is managed Medicaid, who put up narrow network plans probably paying near-Medicaid rates to providers, managed to make profits on low-priced plans, whether or not they offered CSR discounts. In many cases they did not, instead posting a half dozen silver plans that were much cheaper than any competitors'.
Today Mayhew focuses on a natural experiment generated by the lack of competition in many ACA markets -- about 20% of the population lives in counties that will have just one marketplace insurer in 2017. In Tennessee, Mayhew notes, Blue Cross Blue Shield is the only insurer in about half the state (geographically speaking, and including Chattanooga) -- and it's offering an enormous "CSR discount." Humana, the sole insurer in another large swath of the state (including Knoxville), offers no discount -- in fact, it offers just one silver plan. There's a similar difference in the spread between benchmark silver and cheapest bronze in the two insurers' offerings. Mayhew illustrates the effects as follows:
This is an extreme example. In Perry county, a 40 year old earning $25,000 a year, which is slightly more than 200% Federal Poverty Level (FPL), saves $100 a month or roughly 5% of their income because of the Silver Gap compared to the same individual in Roane County. Going to a broader scenario, a married pair of 40 year olds plus a ten year old kid can earn up to $38,600 (~190% FPL) before they have to pay a dollar for Silver plan with Cost Sharing Assistance. In Roane County, that same family is paying $182 per month or 5.6% of their monthly income for their Silver plan.Oh, and for the population:
If that family of three is a pair of 50 years olds and a 10 year old, the Perry County family can earn up to $45,000 a year before they have to pay a dollar for their Silver plan. Bronze plans are zero dollar premiums for this family when they earn just north of $75,000.
The same family in Roane County pays 7.2% of their monthly income for a Silver plan if they earn $45,000 a year. Their zero dollar Bronze plan ends once they earn more than $43,500.
From a risk pool perspective, Perry County should be extremely healthy. The subsidies are rich enough that almost everyone can afford a plan even if it is a minimal Bronze plan. Roane County will see good uptake among people who earn under 150% FPL and decent uptake to 200% FPL. Above those income levels, there will be significant adverse selection as the deals just aren’t too good for healthy people, so the population will be fairly sick and expensive.
More importantly, people in Perry County who are getting subsidized will see the ACA working really well. They have good, cheap health insurance. However their cousins across the state are getting a raw deal compared to the great deal that they get in Perry County. This is especially true as we move up the income scale which means moving up the likely voter scale and influence scaleTo my mind, the most interesting implication here is that a lack of competition is not necessarily a bad thing -- at least for subsidy-eligible enrollees -- in a given ACA marketplace. With carte blanche to structure the market, the insurer can, at least potentially, offer affordable options to all. With ACA rules controlling actuarial value and loss ratios, the main arena of competition -- other than jockeying for the healthiest patients -- is in the rates insurers pay providers. A monopolist has at least some motive to keep those rates down, so as not drive out those who pay full freight, i.e., the unsubsidized -- who tend to be healthier, because wealthier. In fact, competition in the off-exchange market only will put some pressure on rates, since insurers' on- and off-exchange offerings share a risk pool.
Insurers also compete on administrative efficiency, customer service, their ability to motivate or demand coordinated and cost-effective care, and their ability to maximize -- or game -- risk adjustment -- as well as on provider rates and network size and quality -- flip sides of one coin. In the long term, competition is probably essential to generating improvement in these interconnected arenas. This year, however, the danger to the marketplace probably stems more from the monstrous premium corrections in some markets than from a lack of competition per se. In fact, competition drove the unrealistic pricing in the first place.
This feels like an illustration of one of David Cutler's lessons about health insurance; "when consumer identity affects
ReplyDeletecosts, competition is a mixed blessing".
I help manage a national insurance agency, and my comment is that I see insurers compete NOT to get new business.
ReplyDeleteMany insures have eliminated agent commissions. Other insurers do not release their formulary (so as to keep away people who would care about a formulary.Some insurers did not release rates until literally the morning of November 1st. Other insurers took down their software that allows intelligible illustrations of policy features.
They are competing NOT to get new business.
Thanks for the link to Mayhew's article. After reading it, I am tempted to see some virtue in the Republican proposal for flat amount age adjusted tax credits that do not vary with income or with the cost of a silver plan. Even a broken clock is right twice a day, so this Repub. concept may be sensible. it would also get us away from hideous tax reconciliations.
ReplyDeleteProblem is a flat credit works well in low cost areas, ok in mid cost areas and sucks goat balls in Alaska and Arizona
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