Not substantially different to spam the Exchanges

There is a problem with how  the second Silver subsidy point is calculated for the PPACA Exchanges.

A company can offer numerous plans that have minuscule differences in benefit configuration.  Each plan counts as a separate entry in the Silver category, so a company can spam the Exchange with isomorphic plan designs.  If a company is fairly confident that its base configuration is in the running to be either the #1 or #2 lowest priced Silvers, there is minimal marginal cost of slightly tweaking benefit designs by bumping up co-pays or shifting some deductible dollars to co-insurance dollars or otherwise making small marginal and effectively meaningless changes to a plan to spawn mirrors.

There is little pay-off if the insurer creating near mirror plans is in a market where there is tight clustering at the second Silver price point.  If there is an eight dollar spread between the first Silver and the 2nd Silver, adding another 5 plans between Silver # 1 and Silver #2 does not significantly change the subsidy point.

However if there is a spread of $40 dollars between the #1 Silver and the #2 Silver, adding a Silver between those two points so the new subsidy point is only $5 more than #1 Silver, spamming the Exchanges makes sense.

Chicago has an excellent example of this for the 2016 plan year.

For a 40 year old non-smoker, Celtic/Ambetter offers the 1st and 2nd Silver at $195 and $198, as well as the next four Silvers.  The first non Celtic/Ambetter Silver is priced at $249.

The Celtic/Ambetter Silvers are all HMOs, and they all are sharing the same very narrow network.  The benefit configuration (deductibles and co-insurance) change, but the out of pocket maximums are all tightly clustered.  From my point of view, these six plans are functionally similar plans.  The business decision to introduce these six plans, and more importantly the #2 Silver at just a few bucks more than #1 is a membership recruitment decision.

We know that most subsidy receiving individuals who are buying on the Exchange are post-subsidy price sensitive.  Owning the #2 Silver and then seeing a large gap between #2 Silver and the first competing Silver means that almost every price sensitive shopper who is healthy (as they don’t need a broad network) will buy Celtic/Ambetter.  Individuals with known medical conditions are less likely to go to a narrow network plan because they already have relationships with providers that work for them.  It is an attempt to buy healthy membership and dump sicker people to other insurers.

Now how do we fix it?

The regulation that drives plan differentiation on the Exchanges is the HHS Meaningful Difference regulation (. 45 C.F.R. § 156.298(b):) where the buyer must be able to identify one significant difference between Plan A and Plan B.  The key thing is that meaningfulness is defined as “one”.  It is administratively possible to rework that regulation so that a meaningful difference is redefined as two or three or four changes.  Benefit configuration changes would still eat up most of the differences (down deductible, up co-insurance rate would be two meaningful differences).

A tighter regulation would split plans into three components of network, plan design (HMO/POS/PPO/EPO etc) and benefit configuration and a plan would be meaningfully different if two of those elements are meaningfully different.  So an insurer could offer a silver HMO with broad network and high deductibles and a Silver PPO with a broad network and lots of co-insurance and a Silver HMO with a narrow network and lots of co-insurance etc.



2 replies
  1. 1

    It would probably be best to talk about “minor differences” rather than any specific number.

  2. 2
    jl says:

    Thanks for a very informative column. I have long been concerned that that ACA permitted too much of this kind of socially wasteful gaming in order to engineer cherry picking. And seems like the insurance companies are taking advantage.

    Seems to me that if the US is gong to stay mostly private payer for under 65 population (‘free market’ health care), to avoid stuff like this, will end up heading to a fork in the road, either towards Netherlands or Swiss systems.

    Netherlands has looser regulations, and evolving towards a very complex system, and I have heard complaints from clinicians from there that the regulations are always playing catch up and whack a mole with the new schemes invented by private insurers and providers. An example is private provider with integrated inpatient and outpatient services trying to hold on to to profit off of preferred patients even when not best for them clinically, in order to game reimbursement. Like the US, there is a major sectors funded separately by public and private payers, and this has also introduced problems. Resulting a very complex system.

    Edit: Netherlands has a uniform mandatory insurance policy, so the cherry picking and gaming has to go on deeper in the weeds than insurance policy benefit design.

    OK, now Swiss (and me being half Swiss certainly does not bias me, since the Swiss Germans are ruthless and nuts underneath their calm facade): regulate the private market up the wazoo. And the Swiss system was celebrated not long ago by our reactionary free market fanatics as a real unregulated free market paradise, which was a dishonest bait and switch operation, but we can say that we are following their wise advice in going this direction.

    I think the Swiss fix to this problem is not gameable regulatory language, but establishment of price bands for services, and anyone going outside of those needs approval, and approval requires a complete, completely top to bottom open book, audit to identify reasons for price variation.

    Would be more complicated here because Swiss have a uniform mandatory policy, so they can apply their system to price of specific clinical services. US would have to adapt that practice to whole insurance policies. But I think that is more promising than regulatory language about ‘one major difference’ or distinctions between ‘major’ and ‘minor’ differences.

    If RM or any commenter has thoughts on my take, I’d be glad to hear them.

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