One of the flaws of the ACA is the incentive structure built into the second Silver subsidy calculation. The typical on-Exchange subsidized buyer is extremely price sensitive. Insurers have every incentive to design product offerings that are at or very tightly clustered near the 2nd least expensive Silver price point. This means most truly affordable plans will have narrow networks and fairly restrictive access to specialists and high end care. For people who are relatively healthy, this is not that big of a deal. Healthy people don’t have high switching costs as they don’t have long and deep relationships with their current provider set.
However for people who have complex and chronic conditions, narrow networks are sub-optimal unless they get lucky. Switching providers is expensive in time, mental attention, energy and care coordination. If an individual needs to see a different rheumotologist than their current one, a narrow network may only have a few of that specialist available and the first appointment might not be for another five months. That means individuals with chronic conditions are more likely to select more expensive and much broader network plans than the subsidy setting Silver plan. Being sick means the cost of effective insurance goes up for the individual.
Narrow networks are a risk selection mechanism for insurers. It is counter-acted at the plan level by risk adjustment schemes where plans’ diagnosed medical history status by region and metal band is balanced against other plans by region and medical band diagnosed medical history. Plans that have a sicker than average population in a particular band/region combination get money from plans that have a healthier than average covered population. This policy is in place for all public guaranteed issue plans, otherwise the business incentive is for all insurance companies to get as ugly as possible as quick as possible for anyone who would ever go to the doctor’s office.
On an aggregate level, insurer level risk adjustment keeps plans from being too small and too stingy in order to game the 2nd Silver subsidy point. Building a plan that only attracts 23 year old tri-athletes at $88 a month would have the issuing insurer send $75 a month back out in risk adjustment payments. It would make no business sense. However, the incentive structure is currently more painful for the chronically ill than the reasonably healthy.
What if there was a front end, individual level risk adjustment process that builds a potential bump into the subsidy level for each individual? This could be a Wyden waiver idea.
A perfectly healthy individual with no current chronic condition diagnoses in the CMS encounter system would have their subsidy calculated at the 2nd Silver level. Individuals with chronic conditions but no CMS encounter data would be out of luck in the first year. However if that individual applies for insurance on the Exchange in the second year and there is a diagnosis history in the CMS encounter data, there could be a calculated individualized risk score. That risk score is already calculated for CMS Exchange group level risk adjustment, so breaking it down to the individual level is not a technically arduous process. From that risk score, a subsidy bump could be calculated so that an individual with a chronic condition would receive a larger subsidy. That subsidy could be used to buy either higher actuarial value insurance or increase the network size which would reduce the individual’s switching costs.
Update 1: Rebecca Stob makes a good plumbing point that makes this idea harder:
— rebeccastob (@rebeccastob) November 10, 2015
The ACA data is rolled up at the insurance company level for risk adjustment and not at the individual level unlike Medicare. This could be tweaked to work in states with all payer claims databases as a second option. Running a model through a claims dump looking for a combination of CPT4 procedure codes and diagnosis codes is fairly straightforward.