Segmentation within Silver

The health insurance market is a very segmented market.  There are differentiations based on location, network, plan configuration, monthly premiums, deductibles, co-pays, co-insurance, ease of use, pain in the ass factors and branding’s repuational efforts.  One area of particular interest of segmentation is the Silver market on the Exchange.  There are three distinctive markets within the Silver band. 

The Exchange and subsidy design create the first segment of the Silver market.  All subsidies on the Exchange are based on allowing an individual to buy the second cheapest Silver plan on the Exchange for a percentage of their income.  An individual who makes 150% of FPL is expected to pay 4% of their income for their policy.  The federal tax credit subsidy pays the rest of the cost of the second cheapest Silver.  Someone making 399% FPL is expected to pay up to 9.5% of their income for the policy with the feds topping off the remainder.  If these individuals choose something cheaper such as the cheapest Silver or an inexpensive Bronze, they pocket the difference as the subsidy stays constant.  As you can see, there is a strong incentive for insurers to offer at least a  Silver plan that is either the cheapest two Silvers or very close to the subsidy cut-off. 

This segment in a competitive market should see a cluster of plans that are at the subsidy line plus or minus a couple percentage points.  These plans are the first segment.  They tend to be very restrictive in all modifiable aspects.  HMO’s with gatekeeper and strict authorization processes are likely to be here while open access PPO networks are unlikely to be in this segment.  The networks will tend to be very narrow as the pricing model is Medicare plus a small kicker (Where Mayhew Insurance sells, the pricing on this segment is Medicare plus 3% to Medicare plus 8% depending on the insurance company) and insurance companies are avoiding the high cost providers if they can.  These are the super narrow networks where the goal is to get a Silver plan that is either top 2 or really close to top 2 in pricing.  They are aimed at people who are getting subsidies are extremely aware of every additional dollar they have to spend on monthly premiums.   If we had a public option plus 5% scheme in place, it would fall into this segment. 

The next segment is targeted at individuals who are receiving premiums but are not as cost sensitive.  Here, choices or at least the illusion of choices matter more to how people choose their products.  The pricing for provider reimbursement ranges from the Medicare plus a kicker to regular commercial rates.  Plans are still more likely to be HMO and EPO instead of PPOs and the networks will be significantly broader but there will still be exclusions based on pricing.  The referral and authorization process is likely a bit more relaxed than the narrowest and lowest cost products.  Fewer things will need referrals.

The last segment is a bifuracted market segment.  It is either for people who have high medical needs and know it and want no change to their option space or it is for people who are minimally dependent on subsidies and want to replicate employer based insurance.  These plans tend to price at regular commercial rates to providers and there will be minimal network exclusions.  The most common plan configuration is an open access PPO with rich out of network benefits.  There is a deminimis at most primary care provider gatekeeping functionality and referrals are something that other people have to worry about.   

The benefit configuration of deductibles, co-insurance and co-pays are probably similar in all three market segments as the qualification for Silver status only allows so much wiggle room for customization.   Some plans may have a $50 specialist co-pay and 35% co-insurance while others might have a $20 specialist co-pay and a 50% co-insurance but there is not too much of a difference avaible.   The major differences are the size of networks, and the gatekeeper requirements imposed upon the policy holder and their primary care provider. 

These segments were haphazardly defined in 2014 as companies were mostly shooting blind on both what the risk pools looked like and what their competitors’ strategies are.  2014 is a successful beta testing year.  I think the Silver segmentation will be much clearer in 2015 and very obvious in 2016 as more data and experience comes into play.

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13 replies
  1. 1
    Xantar says:

    I’ve heard in some meetings around here that CMS is going to propose (or has already proposed) a rule requiring “network adequacy” which governs how many providers a network must cover. Do you know anything about this?

  2. 2
    Richard Mayhew says:

    @Xantar: Network adequacy has been in play for a long time. The major change that CMS proposed this year was increasing the number of providers that were needed for network to be deemed “adequate”. Last year 20% of Essential Community Providers in an area were required to be in-network. For 2015, that has been increased to 30% of ECPs must be contracted and in-network for a federal exchange network to be approved.

  3. 3
    WereBear says:

    Tomorrow I’m journeying 150 miles to see a specialist whose group practice has miraculously recently joined my network.

    I have tentatively diagnosed myself, asked my doctor to order the proper test, and then tracked down the specialist who should be able to treat this rare disease. There are other “specialists” in my area but since the test I requested was the first time this hospital had ever seen it, I would not want to see such doctors… at this point, I know more than they do.

    With all the network restrictions and such, how would this work if my insurance decided I had “enough” doctors? How do people with rare diseases get treatment with coverage?

  4. 4
    Richard Mayhew says:

    @WereBear: Often you would get run around at first. Once the med-management folks or more probably the legal folks who advise complaints and grievances are convinced that you can’t get care within network, they’ll authorize you to go out of network and your costs would be handled as if that authorized out of network specialist was an in-network specialist for whatever services can’t be provided in-network.

  5. 5
    Richard Mayhew says:

    @WereBear: Also, this is a great idea for a post later in the week.

  6. 6
    WereBear says:

    @Richard Mayhew: Thank you and you are welcome!

    Fortunately, my GP is a gem. Not many doctors would order a certain test just because the patient asked for it, and then admit he didn’t know how to interpret the results we got back.

  7. 7
    SuperHrefna says:

    Richard, could you explain what the difference is between an HMO, an EPO and a PPO? I was very puzzled by this when I picked my plan, there would be two seemingly identical plans with slightly different prices and the only difference I could see was the letters involved.

  8. 8
    Richard Mayhew says:


    PPO, EPO, HMO differences post from March

    The most basic difference is the level of restriction/control the health insurance company maintains on specialty/surgical procedures. PPO is least restrictive, HMO is most restrictive.

  9. 9
    Sir Laffs-a-Lot says:

    Richard: thanks for your many great posts on the new healthcare landscape. Would be possible in the future to put up a similiar post as this one on Gold Plans. Like many older persons with existing conditions, I opted for a very nicely structured and priced Gold Plan that allowed me to stay with my clinic and specialists. I, and other no doubt, would appreciate some insight on how Golds differ and how they are structured; making semi-informed decisions on renewal or plan migration next October that much less tressful


  10. 10
    Richard Mayhew says:

    @Sir Laffs-a-Lot: The segmentation is going to be roughly the same but the incentive to get an as low as possible without regard to network is not as strong. There could be a strategic decision at some companies to only offer 24 Karat Gold plans instead of 14K and 18K Gold plans.

  11. 11
    Sir Laffs-a-Lot says:


  12. 12
    KithKanan says:


    Are California exchange policies likely to continue to only offer narrow networks in 2015? If so, do you know if there’s been any change to the network adequacy rules there?

  13. 13
    Richard Mayhew says:

    @KithKanan: California has what is called “actively managed competition” where the state is trying to optimize on only a few grounds (few differences between policies on how things are paid for via deductible/co-insurance and monthly premiums) so it is highly likely that networks will tend to be fairly narrow in California. States and the federal marketplace which are laissez faire (ish) once plans meet minimal requirements will see much clearer segmentation.

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