Lower prices are bad??? California ACA edition

Covered California, California’s state based marketplace for the ACA individual market, released their initial rate projections for 2020.  

The headline is good news:

California’s Initiatives Will Lead to Hundreds of Thousands Gaining Health Care Coverage With Lower Premiums and New Financial Help

And the chart is interesting.

The headline version is that the most commonly bought plan, silver, are getting cheaper. YEAH!!!! Good news!!!

Maybe, maybe not!

And this is where the ACA gets complex.

Cheaper silver plans are good news for non-subsidy receiving buyers who want to buy a silver plan.  Everything after that gets way more complex.

If we assume that the least expensive silver plan and the second least expensive silver plan are moving in the same direction for pricing, then we assume that the benchmark plan is lower in gross premiums.  As the cheapest bronze plan is now more expensive in 2020 than it was in 2019 and the benchmark silver plan is now cheaper, the least expensive plan is now more expensive for anyone receiving a subsidy as the silver spread is smaller.

We care about the net of subsidy premium for the least expensive bronze plan because this influences the size and health of the risk pool.  The cheaper it is, the bigger the risk pool and the healthier the risk pool.  The most marginal buyer is going to be fairly healthy and very price sensitive.

ACA pricing and subsidization rules leads to the situation where lower absolute and relative benchmark premiums can be a bad thing for some segments of the market.

9 replies
  1. 1
    jl says:

    Thanks for an interesting and informative post.
    I’ve long thought that offering all these plan variations on a single market was a major weakness of the ACA, which would lead to instability and excess complexity. I called it a robot’s breakfast of metals. I think events are showing that my concerns were legitimate.

    Edit: the instability comes from the way too obvious and easy opportunities insurers have for cream skimming and hidden price discrimination to game their risk pool and rake in unjustified excess profits. It makes a system for risk pool equalization subsidies much more difficult.

    Stable, equitable and sustainable systems around the world, that produce the best population health and predictable consumer expenditure offer an identical plan to the population that covers the mandatory minimum level of health insurance coverage, and that market is very highly regulated. If people want additional benefits, they can buy supplemental plans on a separate less regulated market. i think moving in that direction would be a very important improvement to the ACA.

  2. 2
    大芒果 says:

    thanks for the article which as is the case with all insurance articles gives me tired head….give me single payer where I don’t have to make educated guesses that may bite me in the butt….butt bites are rarely covered….

  3. 3
    daveNYC says:

    Dunno if anyone has requested this, but do you mind positing what happens if the ACA gets shot down? The courts questioning did not seem promising, so that scenario seems like one worth pondering.

  4. 4
    AnonPhenom says:

    Thanks for the post David.
    Do you have a ‘take’ on the drug rebate rule being killed off (winners & losers)

  5. 5
    Brachiator says:

    A few tidbits from a recent story about California health care…

    Since the Affordable Care Act was implemented in 2013, the state’s uninsured rate has dropped from 20 percent to 7 percent. A new study estimates that without a mandate, up to 800,000 more Californians under age of 65 will be uninsured by 2023, according to the UC Berkeley Center for Labor Research and the UCLA Center for Health Policy Research….

    Two bills have been submitted to the California legislature which would create a California version of the individual mandate, beginning in 2020.

    Emerson said Covered California has already seen a drop in coverage since the federal mandate was revoked.

    Covered California saw new enrollment for health insurance drop about 24 percent this year, which the agency attributes to the removal of the federal mandate.

    In 2018, 3.4 million, or seven percent of Californians were uninsured. The Inland Empire had the second-highest number of people uninsured, after Los Angeles County, with 424,000 people without health insurance. Of that number, 42 percent are not eligible for coverage because of their immigration status.


  6. 6

    That’s great, California!

    now fix the housing crisis, will ya?

  7. 7
    MaryLou says:

    Adjusted for inflation, these numbers look better. Kevin Drum posted about this yesterday: https://www.motherjones.com/kevin-drum/2019/07/in-california-obamacare-rates-are-going-down/

  8. 8
    ruemara says:

    I’m glad they are getting cheaper, at least. I’m in bronze tier and the goal is to not use any of my health insurance unless it’s a real emergency. The prices are still way too high, even with subsidy.

  9. 9
    Mormo says:

    Yes, there are a lot of moving parts! In the big picture, Covered CA looks like a pretty stable market & attractive market for health insurance coverage, which seems like a good thing. Also, many Californians (southern) face relatively low unsubsidized insurance premiums as it is (not saying they’re low enough, just lower than some particularly benighted parts of this country).

    On the subsidized side, California has added small subsidies for 200-400% FPL families on top of ACA. (138-200% are eligible for extra subsidy silver plans, which are extra enriched…). Hopefully these will help with any squeeze from a reduced gap. And there will also be subsidies for 400-600% FPL now, to smooth the cliff. Importantly, a lot of Californians don’t face the cliff as it is, being even moderately young, single, childless, etc.

    Way down in the weeds, Covered CA has one or two benefit designs for each metal level for all insurers statewide (so, for instance, all regular bronze plans are the same in deductibles and copays etc.) This upcoming year they’ve enriched bronze and hsa-compatible bronze by about 1.5% actuarial value, which will be a good part of the relative bronze rise. I don’t know why they made this choice but the obvious changes are higher (poorer) deductible and 65 instead of 75 doctor visits & urgent care. Which maybe suggests they want people to feel more “encouraged” to use their insurance on the front end. The enrichment may also be to squeeze a few more people towards silver.

    Covered CA clearly cares a lot about public policy stuff. It’s a bit nanny state, yes, but it’s also way easier to shop and it’s really clear that my state is pushing towards something more like health insurance as infrastructure, where the insurers are so heavily regulated that the marketplace is actually more free. They’re only competing on value, network, quality, fringe benefits, customer service, not zillions of benefit designs and insurers entering and leaving the market.

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