Hope and benchmarks floats

Adrianna McIntyre at Vox raises a good mechanical point about the next Exchange open enrollment period.  People will be changing plans in order to minimize their out of pocket premiums.  She explains the mechanism:

The federal subsidies used to offset the cost of insurance are based on income, but they’re also pegged to the second-cheapest silver plan on each state exchange, which is called the “benchmark plan.” When people choose something cheaper than the benchmark plan (the cheapest silver plan, or one of the bronze plans), they will spend less money out of their own pocket on the insurance premium. If a person chooses a plan that’s more expensive than the benchmark plan, he’s responsible for the extra cost…

But annual changes to insurance premiums aren’t uniform across plans. That means the “benchmark plan” can change from year to year — with financial consequences for those with subsidies. These consequences will be most acutely felt by low-income enrollees.

My first response looking at the world as it is instead of as I and many others here wish it to be, is so what.  People in private insurance have to routinely consider switching plans every year to minimize their premium and expected out of pocket expenses.  I know that I have held the same exact plan configuration (benefits, deductibles, co-pays, network) at the same exact per paycheck cost for one dyad in my working life.  It happens in the private market, it happens in the public-private partnership of CHIP market, it happens for Medicare and Medicare Advantage, it happens basically everywhere except Medicaid fee for service.

However there are a few important policy and technical points to draw out.

When I’ve had to choose between plans at work, I am choosing from an extremely well defined and curated list.  Between what my wife’s employer offered, and what I’ve been offered, I think the most choices I’ve ever had was eight or nine.  Eight or nine choices, which really breaks down to four or five distinct choices as half the choices were nearly identical offerings from a national carrier and Mayhew Insurance.  Four or five real choices is a choice set that is not a matter of cognitive overload.  I can make a good enough choice from that menu.

The Exchanges aren’t that simple.  It will not be uncommon for someone to initially have 150 choices. 

Most of those choices can be categorized as near isomorphic substitutes, but that requires significant knowledge that most people don’t readily have available to themselves.  This is significant decision overload and is an argument against the idea that competition will lead to people quickly finding optimal plans.  It is not like we have plenty of evidence from Medicare Part D showing how information overload and anchoring biases lead to expensive sub-optimal outcomes.  Decision support tools like Health Sherpa can help narrow the choice set to something reasonable, but this is a nasty cognitive task. 

The next technical point is the relative positioning of the Silver plans is a reflection of whose actuaries and market intelligence folks were the most and least accurate.  In 2014, price was a primary driver for enrollment.  People picked the cheapest plans.  Those plans tended to be narrow networks (which is fine for this point), and they also tended to be either intentional loss leaders as companies try to build membership and make it long term sticky OR unintentional examples of the Winner’s Curse.  The Winner’s Curse happens when multiple people are estimating against an unknown.  The best bid tends to come from the person who makes the worst estimation error.  The cheapest plans have a high probability of assuming a healthier population than the most expensive but broadly similar plans within the same category.  We should expect the cheapest plans, the big Silver winners of 2014 to be among the price increase cohort at a disproportionate rate while the most expensive plans within a segment are more likely to show price declines due to either a need to attract membership or better estimate of the central tendancies of health status.

People whipsawing between plans may not be a massive policy challenge if they stay within the same insurance company. However, if there are switches between companies, this is a potential policy problem. 

One of the major goals of Obamacare’s system delivery reforms is to encourage more preventative care, to encourage finding and fixing problems at the lifestyle and educational level instead of the hospital admission level.  These types of reform have the potential for long term pay-offs in both improved quality of life and lower social costs but the pay-off time period is often more than six to nine months.  Insurance companies that can lock their members in for multi-year periods have a very distinct incentive structure to get prevention right even if that prevention requires significant up-front cash.  However, a rapidly churning market reduces the incentive for any given insurance company to invest resources and cash in prevention efforts that don’t pay off in the next two quarters. 

The optimistic take is that 2014 was effectively a beta testing year for the Exchanges, but pricing, networks and basic benefit designs should stabilize in 2016 and beyond so the churn will be far less as the benchmark Silvers will be tightly clustered with several competitors’ products so people won’t change plans to save only $10 or $15 a month.  The pessimistic take is that the preventative care goals of the delivery system reforms will be thwarted by the exchange competition goals.

28 replies
  1. 1
    Yatsuno says:

    I guess this all comes down to how much plan shifting there will be come next enrollment period. I have four major choices as a Fed for my insurance in Washington State. I selected a plan that had the most generous benefit for a particular need of mine and it just happens to also be quite generous for the other needs that have cropped up as life has happened. I stick with it even through the open enrollments because changing at this point is way too much hassle and I’m certain it is for other humans as well. So there will be some plan jumping but lassitude may just account for there being a lot of stability as well even among those who are dissatisfied with their plan.

  2. 2
    Richard Mayhew says:

    @Yatsuno: I expect a good amount of stability due to both inertia/pain in the ass to transition costs as well as the Feds are going to a default renewal process where it takes active engagement to change plans. But there will be significant movement

  3. 3
    MomSense says:

    I went with a cost sharing silver and chose a plan that had our local doctors and the ability to see my specialist when needed. I think there were four choices and three of them were with the co-op and one was with Anthem. The Anthem plan was more expensive and more restrictive. I’m not sure what the options will be next open enrollment but I will look through them but my hunch is it would take something major to cause me to switch.

  4. 4
    piratedan says:

    I get the feeling that there’s always going to be a certain amount of churn based on the fact that certain categories of folks feel the need to “save a buck” no matter what. A fair number of these are because of the economic realities of the day (Thanks Obama!) because 10-15 bucks a month ends up being 120-180 bucks that can be used elsewhere tyvm and we’re not made of money….but there’s also a goodly portion of folks that simply shop for the best deal because that is how they’re wired. Like those folks that submit a new W2 withholdings forms every six months to ensure that the amount of taxes paid and withheld are as close to even as possible.

  5. 5

    I believe the phrase “race to the bottom” applies.

    Me and my wife are about to join that system, and financially it is a crapshoot. One cannot reliably budget. And you’re telling me that unless our finances improve, next year we may only be able to afford a plan that doesn’t include our doctors? That I’m going to have go through all this work again, and put our health at risk because our medical team will change?

  6. 6
    kc says:

    @The Raven on the Hill:

    You just need to clap harder!

  7. 7
    Ruckus says:

    @The Raven on the Hill:
    On the other hand, things could get better for you.
    Your choice, half full, completely empty.

  8. 8
    narya says:

    At the community health center where I work, we hired folks to help patients get enrolled in Medicaid or other insurance (depending on eligibility). We have since found that we need to keep those staff to help people navigate insurance–understand their own costs, understand how to actually use the insurance, etc. We also think that a certain number of patients will just drop the insurance and pay the penalty–and we can’t turn them away, because of the aforementioned community health center status. If their income is sufficiently low, the sliding fee scale we use will mean they pay very little either in penalty or for the care they receive.

  9. 9
    FlipYrWhig says:

    @The Raven on the Hill: Sounds like how insurance works.

  10. 10
    aimai says:

    @The Raven on the Hill: No, no one is telling you that. They are telling you that thanks to the ACA if your finances don’t improve and your medical situation worsens you will still be covered by health insurance and be able to access some doctors and quite a bit of medical treatment despite having pre-existing conditions or getting into a costly accident. They are telling you that if your financial situation worsens you may be eligible for more subsidies. They are telling you to stop whining so hard.

  11. 11
    Goblue72 says:

    @The Raven on the Hill: this happens every year with employers – you just never see it. at my company, its been many many years since we have been able to reliably predict annual employer premium increases. And often those increases were well over 5% per year.

    Employees with employer provided health insurance have been sheltered to a degree from this – another benefit of the Exchanges is increased awareness of what “out of control healthcare costs” really means.

  12. 12
    Eric U. says:

    my employer has really been sticking it to us, mainly because Pennsylvania has been sticking it to them. We still can go to our preferred provider, but it’s getting more expensive.

    I feel like they used the ACA to stick it to us without telling us the truth, but there is zero visibility into the process

  13. 13
    Glocksman says:


    The only reason I can predict mine is because the increases are set for the next 3 years in my Union contract.
    The nonunion maintenance people and lower level management bitch all the time about unexpected increases every August 1st (plan year start for my employer).

    As it is, my insurance goes from a 90-10 plan to an 80-20 plan, with a max out of pocket increase to $750 (from $600 currently).
    My share of the premium goes up by a total of $5/wk to $37 over the 3 year life of the contract.

    When I started at TJ Maxx in 1996, my premium was $5/wk for 100% coverage.
    Hopefully the ACA will keep medical inflation under control.

  14. 14
    StringOnAStick says:

    I have a friend who is single, 62, and works fulltime as a dental assistant; the pay is universally so poor that when she looks at her salary, she can’t afford ACA coverage but makes enough to get no subsidy here in CO. She’s paying off a bankruptcy settlement and rents went up 10% around here this year; she’s decided to just pay the penalty. I know that eventually the penalty will become a big bite, but I think she’s planning on either hitting 65 or dying first. I do know that her retirement plan consists entirely of the latter.

    There are probably a lot of single women in that position, which leads me to think that as Boomers age and run out of money, we’ll see a big push for legalizing medical euthanasia and/or decriminalizing suicide. Will the US put money for the 1% ahead of making sure the elderly don’t live in the gutter? My cynicism knows no bounds on that issue.

  15. 15
    🌷 Martin says:

    Interesting. They’ve effectively established a Vickrey auction to the government. Vickrey auctions are private bid auctions but the winner pays the 2nd highest bid, rather than the highest. It’s designed to elicit bids that better reflect the true value of the item, and discourage angel bids, and such. It’s been shown to tighten up the bidding range compared to standard auctions. In this case it would be to discourage setting rates that operate at a loss and effectively drive everyone out of business. Paying insurers too little is as counterproductive as paying them too much. Google uses this approach for ad rates.

    This is the kind of stuff that you would expect bureaucrats to fuck up, but someone knew what they were doing here. There’s a lot of encouraging elements in the ACA.

    The new Healthcare.gov sounds like it will be vastly better and make it easier for people to comparison shop. Having a good retail experience is as important to how people make decisions as things like price and it sounds like they’re putting a lot of effort into how consumers see and compare plans. This is the most encouraging bit:

    Moreover, the rescue effort has provided a blueprint for reforming long-moribund government IT. The next step is getting more people like those on the Ad Hoc and Marketplace 2.0 teams into public service. Indeed, many of them have become evangelists for this cause. “This is my second job—I’m only 24,” says David Chang, who took over as de facto product manager after Jini Kim. “It’s phenomenal to have this impact on how government does IT, how millions of people get healthcare.”

    If the government can take modern approach to IT, it will be revolutionary to this country. But it means killing a LOT of sacred cows.

  16. 16
    Mnemosyne says:


    As we get a better look at how ACA is being implemented in the different states, it’s becoming pretty obvious that the next round of legislation and/or regulations is going to need to do something about low population states like Colorado or Vermont where the market is too small for insurance companies to be willing to make an effort to have affordable choices.

    My first thought would be to allow those low population states to form alliances with neighboring states to increase the pool and negotiate better terms with the insurance companies, but then that gets close to the dreaded “let insurance companies sell across state lines!” that could lead to a race to the bottom, so it would have to be set up very carefully.

  17. 17
    Richard Mayhew says:

    @Mnemosyne: That is the interstate compact idea where states can band together and say that there is either a common regulatory framework for this set of states, or reciprocity where regulator approval of a plan for State X will allow sales (assuming network etc is sufficient) in State Y’s counties. That, I think is a year or two out.

    The big difference between this idea and the Republican proposal is that the states themselves get to decide who they want to partner with. For instance, I think Massachusetts and Conneticutt share enough of a political/regulatory outlook that Boston would be okay with Hartford regulations. However Massachusetts would most likely not want to have South Dakota or Mississippi set its healthcare regulation.

    The Republicans support a race to the bottom without consideration of what the various states want while the PPACA approach allows states to choose their partners. So you could have a race to the bottom between Texas, Arkansas, Oklahoma, Mississippi, Alabama and Georgia while Massachusetts points and laughts.

  18. 18
    🌷 Martin says:

    @Goblue72: Yeah, that’s the truth. I see the employer cost side of it, and it’s just frightening. Healthcare benefit costs have soaked up all money. It’s just beginning to level out a bit now. I’ve been looking at this for 18 years now and we’ve been putting in at least 10% cost increases for employees each of the last 8 years or so, but in order to make it work at even those levels we had to cut benefits and eliminate any pay increases. This is the first year in quite a while we’ve been able to do an across the board pay increase and that’s because premiums finally leveled out a bit, mainly because we asked for our employee plans to be more closely aligned with the exchange plans.

  19. 19
    Richard Mayhew says:

    @🌷 Martin:

    This is the kind of stuff that you would expect bureaucrats to fuck up, but someone knew what they were doing here. There’s a lot of encouraging elements in the ACA.

    The year long process to get PPACA established and the several years preceding it by the wonks who were actually interested in making things work plus the Congresscritters who were willing to listen to the wonks thought about this set of problems pretty damn hard and looked at what was and wasn’t working in Massachusetts.

  20. 20
    Mnemosyne says:

    @Richard Mayhew:

    As I said when I was talking about it yesterday, you would have to choose your neighbors carefully. :-) Geographically, it would make sense for Colorado to partner up with, say, Wyoming, Utah, and New Mexico, but I don’t see that partnering up with Wyoming or Utah would be much better than partnering with Mississippi (though apparently Utah is at least “considering” expanding Medicaid).

  21. 21
    jl says:

    Thanks for a very useful post. I agree with the conclusion completely. That is why I’ve worried about the ‘robot’s breakfast’ of metal plans since the ACA took shape.;

  22. 22
    Nathanael says:

    The exchange system is already a disaster and is going to get worse. In NY, the proposed premium increases for 2015 are about 20%.

    The Medicaid expansion is a success. Financially, if you’re self-employed, the thing to do is to arrange to be on Medicaid as often as possible, and if your income has to be too high one year, don’t buy insurance that year.

    The situation is ridiculous.

  23. 23
    pseudonymous in nc says:

    Paradox of choice, etc.

    We already saw a hint of this with those people desperate to keep their dogshit fake-insurance $50/month plans because they were lucky enough never having tried to use them — and with the proposed sub-Bronze tiers. And I do fear a race to the bottom again, rather than market pressure on premium rates: there’s a point at which Americans should not be allowed to buy shitty insurance even if they want to.

  24. 24
    Mnemosyne says:


    Link? Here in California, even Anthem Blue Cross (the largest for-profit insurer) is only predicting a 10% hike at worst.

  25. 25
    Richard Mayhew says:

    @Nathanael: Cites? I’m not seeing those reports. For the small group market in New York, average rate increases are under 10%.

    The state has a couple of insurers with very high requested increases (note that the state is not obligated to approve the request and they tend to come down), and the Exchange information has not been released yet for the preliminary filings.

  26. 26
    Richard Mayhew says:

    @Nathanael: and if you want to comment spam, please go elsewhere as I read the same exact comment by you over at Krugman’s blog and the NY Times comments on his column.

  27. 27
    Ruckus says:

    @Richard Mayhew:
    Conservatives never let it be said that a shitty mime can’t be spread far and wide.
    Trolling is tough business. One has to sit in front of a computer type device and type. If you are a real troll you have learned to cut and paste. It’s hard work being this wrong all the time.

  28. 28
    Jay in Oregon says:

    I’m trying to find a source for a rumor that I’ve heard about insurance coverage post-ACA, and I hope that Richard or someone here can help me.

    I have a friend who has diabetes and just changed jobs. He opted to pay for COBRA because he was told (and I haven’t found out who told him yet) that if his insurance coverage lapses for even a day, that whatever insurance he ends up with could potentially deny any claim he makes for the next six months. And COBRA took 3 weeks to get his ID information to him so he’s been paying for his medications out-of-pocket, to the tune of about $2000—and that doesn’t count the cost of paying for COBRA for a month.

    To me, that “can deny claims for six months” thing is utter bullshit. Looking at the CoverOregon site, it’s clear that losing coverage due to changing jobs is a qualifying event for buying insurance through the local exchange. My friend has a bad habit of listening to the right-wing cranks in his circle of friends, and so I’m trying to find out which right-wing nutjob—Beck, Hannity, Limbaugh, whoever—is peddling that line of crap, or if someone just made it up out of whole cloth. Because whichever “friend” told him that has fucked him over pretty thoroughly.

    Seriously: fuck Limbaugh, and Hannity, and Beck, and Fox News, and all of these assholes who are wrecking people’s lives for political gain.

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