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.