APTC Hacks — defining terms

Advanced Premium Tax Credits (APTC) are how people get subsidized to buy Qualified Health Plans (QHP) on Exchange.  They are based on an individual’s income as determined by their family unit’s Federal Poverty Line (FPL) percentage and the cost of the second least expensive Silver plan offered on Exchange in their area.  The subsidy arrangement means that individuals with the same exact financial situation will pay the same amount post-APTC subsidy for the second lowest Silver plan across the country.  The APTC is a fixed amount for an individual.  If they choose to buy a cheaper plan, the APTC eats up a higher percentage of the plan premiums.  If they choose a more expensive plan, the individual buyer pays more to “top-off” the purchase.

This only applies to on-Exchange, subsidized plans.

This subsidy design is hackable.  I’ve identified two major types of hacks/business strategies that I’ll want to explore more this week which exploit the subsidy structure for insurance company ends.

The first is what I call Silver Spam.  Ambetter in Chicago is my case example.

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.

The goal of an insurer in the Silver Spam strategy is to offer the #1 and #2 silver plans in the region with a very small gap between those two.   Furthermore if they can keep the price of the second Silver significantly lower than the price of the first Silver plan offered by a competitor, they’ll be very happy.  The objective of the Silver Spam strategy is to take away choice.  The relative value of the APTC when applied to the purchase of the 1st Silver is not much higher than it is when applied to the #2 benchmark Silver.  If there is a large gap between the Silver Spammer’s Silver plans and the next best offer, the Silver Spammer will capture a large proportion of the market for Silver and should (all else being equal) capture a decent proportion of the Bronze market.

It is a membership and healthy risk capture strategy.

On the other extreme is what I call the Silver Gap strategy.  It is also a manipulation of the space between the #1 and the #2 Silver.  But instead of an insurer minimizing the space, the insurer maximizes the space between those two price points.  The goal is to maximize the relative value of the APTC.  This can be done with an insurer offering both the #1 and #2 Silvers or with seperate insurers offering the plans.  Molina in California’s Region 16 in 2016 is a good case example of a double insurer Silver Gap outcome.

Region 16 that Molina made its play and gained its share. Molina put up both the cheapest silver and the  cheapest bronze plans in that region — massively undercutting the benchmark silver plan, and thus offering buyers a major discount on the Cost Sharing Reduction (CSR) subsidies available only with silver. For a 40 year-old earning $23,000, a shared under 200% of the Federal Poverty Level (FPL), Molina silver is just $74 per month in Region 16 in  2016, vs. the benchmark silver’s $119 (Health Net).  Molina’s bronze plan at that age and income level is just $1 per month, vs. $55 for the nearest competitor.

In 2017, early indicators are that some insurers are aggressively pursuing a one sided Silver Gap strategy.   Carriers would offer a low price Silver and then a higher priced Silver as the benchmark.


This strategy is designed to drive people to the #1 Silver plan as it will be comparatively cheaper than the #2 Silver.  It will also have the ability to drive people to very low premium Bronze plans.

There are other exchange strategies that don’t rely as much on manipulating APTC structures.  Some carriers are not as price conscious.  Instead they are targeting risk adjustment plays by offering people with high risk adjustment scoring conditions insurance where the gamble is the insurer can manage their care and outcomes to be better and cheaper than the combined sum of premiums and risk adjustment inflows.  Others are still throwing mud against the wall.

I’m fascinated by the APTC hacking strategies because as major players pull out of the markets, more regions are seeing either only a single carrier offer plans or two carriers offer plans.  Depending on how the plans are offered we could see consumers be either very happy or extremely pissed off.  If carriers are offering a narrow network, low price Silver as the #1 and a broad network Silver at a significantly higher premium as the #2 benchmark Silver, people will be, on the whole, very happy.  If carriers offer a narrow network HMO with miniscule benefit configuration tweaks as Silver #1 through #8 people will be extremely pissed off.  The ACA story devolves into a story about the experience of individual counties at this point.

10 replies
  1. 1
    Mathguy says:

    For our insurance guru: This is possibly a ridiculous question, but…what’s the to fix this mess created by so many majors pulling out?

  2. 2
    Richard Mayhew says:

    @Mathguy: short term hacking the exchanges to silver gap as much as possible. Long term not sure beyond no more congressional sabotage

  3. 3
    Anya says:

    Richard, I just want to let you know that I read all of your posts and use them to debunk misinformation on Twitter and elsewhere. Thank you for all the time you put in. It’s greatly appreciated!

  4. 4

    Just as a warning — I have a couple of extremely wonky posts about APTC strategies coming up over the next couple of days. I’m intentionally going down a rabbit hole this week.

  5. 5
    Just Some Fuckhead says:

    You’re doing God’s work in making the case for a rational single-payer system. Keep it up!

  6. 6
    Tripod says:


    Congressional Democrats should start talking about setting up a health insurance GSE for markets w/o competition.

  7. 7
    Miss Bianca says:

    @Richard Mayhew: “Extremely wonky”? Oh, *noes* – as opposed to the merely “highly wonky” of your usual posts?//

  8. 8

    @Miss Bianca: Yes, the next couple of posts I’ll be shocked it I get more than 5 comments on… that depth of wonky :)

  9. 9
    Tom D says:

    Good analysis of pricing and glad you acknowledge risk adjustment. Insurers are finding out that thy need to pay much more attention to how pricing affects risk adjustment. Low balling the market is disastrous to risk adjustment. Look for very large premium increases in 2017.

  10. 10
    Richard Mayhew says:

    @Tom D: We are already seeing that on the filed rates (Charles Gaba has a national weighted average of ~23% filed)

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