Washington State is on the verge of passing a public option for their individual market. The bill that will soon go to the governor’s desk is here. I want to highlight one section that illustrates a problem for standardized plans.
(1) The exchange, in consultation with the commissioner, the
11 authority, an independent actuary, and other stakeholders, must
12 establish up to three standardized health plans for each of the
bronze, silver, and gold levels.
14 (a) The standardized health plans must be designed to reduce
15 deductibles, make more services available before the deductible,
16 provide predictable cost sharing, maximize subsidies, limit adverse
17 premium impacts, reduce barriers to maintaining and improving health,
18 and encourage choice based on value, while limiting increases in
health plan premium rates.
(iii) The actuarial value of nonstandardized silver health plans
27 offered on the exchange may not be less than the actuarial value of
28 the standardized silver health plan with the lowest actuarial value.
These two sections are in tension for any non-monopoly county.
I’ve been banging the drum on Silver Gapping which is the spread between the cheapest Silver plan and the benchmark Silver plan for years now. The benchmark plan is the second least expensive silver plan in a buying region.
Premiums for a given plan are a function of network costs, actuarial value, plan type and incentive effects of the benefit design. Standardized benefit designs eliminate actuarial value and incentive effect differences between competing insurers. Instead they will compete on who can get better pricing from providers and how restrictive their plan designs are (PPO vs. HMO basically.)
If there are two or more insurers offering a standardized silver plan in a region, the standardized plan design will compress the premium spread as Insurer #2 will offer a plan that is only slightly more expensive than the cheapest Silver plan. Price sensitive buyers who are subsidy eligible will be seeing fairly sparse discounts. This means the risk pool is smaller and sicker than it otherwise would be.
Standardizing plans reduces the complexity of the choice structure. That is valuable. However, it also makes net of subsidy premiums higher for quite a few people. This is a tension that states have to grapple with.