Washington State’s public option and premium spreads

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.






7 replies
  1. 1
    p.a. says:

    I thought Cali looked at a public option and decided it could not afford one (monetarily or politically or both). If Cali’s resources are not enough, how is Washington’s. Or am I mis-remembering what California considered.

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  2. 2
    rikyrah says:

    @p.a.:

    I thought it was single payer that California couldn’t get the numbers to work.

    ReplyReply
  3. 3
    rikyrah says:

    Will keep an eye on how this develops in Washington state.

    ReplyReply
  4. 4
    p.a. says:

    @rikyrah:
    https://pnhp.org/news/reducing-californias-single-payer-legislation-to-a-public-option/

    You’re right. Pub opt still in study phase aft single p numbers wouldn’t work.

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  5. 5
    Robert Camner says:

    While it’s nice to hear your analysis of the impact on subsidized buyers, I’d be even more interested in your analysis of whether a public option that is designed to compete with private insurance plans in a standardized manner is (or is not) good public policy, which I would define as “the greatest good for the greatest number + providing an appropriate safety net for the most vulnerable”

    ReplyReply
  6. 6

    @Robert Camner: the short answer is that is depends on how the current market is locally structured and how the public option is structured.

    On net, it is probably a no worse off situation for non-subsidized buyers, and it gets messy for subsidized buyers.

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  7. 7
    Dan B says:

    This legislation seems to have no coverage in the local papers. The Seattle Times skews heavily to Elizabeth Warren’s former views: Don’t waste money on reprobates and the undeserving. It’s a surprise to read about it here first. Thanks! A more robust discussion seems like it would be valuable.
    One of my local rep’s is good. If you have an elevator version to forward to his staff that would be handy, along with a link to the technical fixes.

    ReplyReply

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