David Anderson

We’re in the middle of the Open Enrollment Period (OEP) season for health insurance.

Medicare opened their gates last week.

The ACA Marketplaces will open up on November 1st.

Many employers either have already (hi Duke!) or will soon be opening up their health insurance enrollment period for January 1 start dates.

 

I just have a few things to say about this.

• Take a deep breath.
• Accept that good enough instead of optimal is going to be good enough.
• Look for help

Medicare and the ACA open enrollment periods are several weeks long.  Most employer OEPs are at least a week if not more.

Insurance is fundamentally confusing.  A good chunk of my current research agenda is predicated upon that sentence.  I am convinced that if I had to buy either an ACA plan or a Medicare Advantage plan to cover my family for 2021 that I would not make the optimal choice except by random chance.  I am very confident that I will avoid hideous choices.  I am confident that I can make a good enough choice.  And I know that I spend way more time than it is healthy thinking about both insurance design and choice architecture.  With that caveat, if I am convinced that I am unlikely to make an optimal choice, please give yourself grace in being happy to make a more than good enough choice.

Making good enough choice is easier in some choice environments than others.  Duke offers four health plans.  The HR department did a lot of the work in curating the choice set so that everything that I faced last night before registering my choices was very distinct and clearly different.  There is a basic HMO plan with the network basically being any facility with “DUKE” in its name and any clinician employed by Duke.  That is the lowest premium and lowest actuarial value plan.  Given that my family is healthy, we have assets to cover a deductible expense and my familys’ PCP office is another six minutes walk past my morning coffee stop, this is a damn good deal for my situation.  I chose the same plan that I’ve had since 2017.

Other choice environments are messy.  Dozens of plans with a wide variety of networks and benefits are on the ACA exchanges. Dozens of plans with a wide variety of networks and benefits are on the Medicare Advantage choice menu.  Depending on your situation and needs, some plans are obviously horrendous for you.  Others might be good enough.

And trying to figure out Good Enough from Really Good can be tough.  This is where getting help can matter.  Individuals who are Medicare eligible can access help through brokers and agents.  Be careful of agents who are “captive” which means they can only sell a single insurers’ products.  Medicare pays flat commission so the incentive for an agent who has been around for a couple of years and is likely to be around for a while is to build a relationship by offering good advice that does not screw you over so that in future years, the agent gets a decent residual commission for the renewal.  ACA plans offer variable commissions by product and insurer so the incentives for a market with a lot more fundamental churn in it are messier.  But look for help. Go to navigators.  Go to the Area Agency on Aging.  There is nothing wrong in asking for help.

So take a deep breath, take your time and take some grace while seeking help.

 

 

 

Open Enrollment Period notesPost + Comments (14)

Last night, the Center for Medicare and Medicaid Services came out with their annual pre-Open Enrollment ACA data packet.  One of their big brag points is a legitimate increase in competition back on the ACA exchanges:

Table 1 shows PY17–PY21 QHP issuer participation and plan availability. In PY21 there are 181 QHP issuers participating in HealthCare.gov state Exchanges, an increase of 6 issuers from PY20 and an increase of 22 issuers when considering only states using HealthCare.gov in both PY20 and PY21. On average, PY21 enrollees have access to between 4 and 5 QHP issuers, which is greater than in PY17–PY20, and over 60 QHPs, which is greater than all previous years. Additionally, 4% of PY21 enrollees have only one available QHP issuer, which is the lowest percentage since PY16.

This makes sense. The ACA marketplaces are notably profitable with insurers consistently making well over the cost of capital in profits over the past few years. The ACA marketplaces are policy stable. The ACA marketplaces are politically stable (assuming the Supreme Court does not go YOLO on them). Profitable markets that are fairly predictable and stable with some states reinsuring against moderately high cost claims and federal catastrophic reinsurance is damn attractive. Insurers should expand. Insurers should enter new markets. This makes sense. This is a good brag point.

However… the ACA subsidy system does weird things with competitive markets. I want to highlight Figure 2:

The cheapest Silver plans for a subsidized buyer has gotten more expensive even as more competition is in the market.

THIS IS WEIRD!

It is also a direct result of the price linked subsidy system where the subsidy is attached to a dynamically generated value in each county.  That value is the price of the second least expensive silver plan.  Subsidized buyers are indifferent to price levels.  They are very sensitive to price spreads.  A monopolistic insurer can elect to create very large benchmark spreads.  This is a way to get to accidental and incidental single payer in some states.  These are short term price discounts as very profitable monopolistic markets should see new entries sooner rather than later.  In competitive counties/regions, insurers will price at least one of their silver plans as close to the bottom of the premium range as possible to increase the probability that they will get a good chunk of the CSR eligible and heavily subsidized population.  In both scenarios, the benchmark silver premium is the same, but the cheapest silver plan is way more expensive to subsidized buyers in competitive markets.  This is weird set of incentives and market design as competition does not help consumers on premiums; it may help on other attributes (network, plan type, customer service, unobservables etc) but not on price.

So more expensive cheap silver plans are a direct consequence of new entries into the market.

Interestingly, the cheapest gold to cheapest silver gap is shrinking.  We saw in California significant shift out of silver and to gold in 2018.  Gold’s absolute average cheapest premium is lower in 2021 than it was in 2018-2020 and the spread is lower, so I think we’ll see more movement to gold this year as well.

 

 

Oddities of competitionPost + Comments (4)

A few weeks ago, I thought that the Center for Medicare and Medicaid Services (CMS) guidance on how insurers should accrue risk corridor payments to the year earned and then re-calculate any MLR obligations was both a defensible  decision using standard accounting practices and an invitation to solve the question of whether a marginal dollar should go to more hookers or better blow with the answer of BOTH!

Another other option CMS could adopt was to say that risk corridor funds should be accrued to the years that they were supposed to be paid and then have MLR recalculated for those years.

This is the track that CMS proposes to do.  It is a logical pathway.  The risk corridor obligations were generated in 2014-2016, so when they finally arrive into the insurers’ vaults, they should be credited to those years. This is straightforward accounting.  MLR calculations will be run and any payments that are now owed will be paid….

We know that insurers lost massive amounts of money from 2014-2016 on the ACA individual market.  Raw MLRs were in the high 90s and at times well over 100 where claims were greater than premium revenue.  There were a few profitable insurers that kicked in miniscule MLR rebates.  But there were not many insurers that lost enough money to be RC receivable AND also had ACA MLRs just above the refund line.  A big cash infusion for those few insurers will generate MLR rebates that will eventually go into consumers’ hands.  However, the more likely scenario for insurers that are now receiving RC funds after the favorable Supreme Court ruling will be that they lost a massive amount of money in 2014-2016 which generated the RC receivable and in the process of losing a massive amount of money, their MLRs were wicked high.  So once the RC money lands and accrues to the correct years, the re-estimated MLRs are still above the refund limits. At that point, the RC money is free cash flow to the insurer.

Wakely, an actuarial consulting firm that is highly engaged in the ACA individual market, just released an issue brief with their estimate of the distribution of risk corridor payments:

Based on our findings, Wakely estimates that approximately $298 million (or 2.4% of total additional RC recovery payments) additional MLR rebates will be distributed as a result of the adjustment to the 2015-2018 MLR filings due to retroactive RC payments.

One way of looking at this is that this is a massive distribution of hookers and blow.

The other way to look at it is that insurers lost billions from 2014-2016 and the RC payments still have them, on net, still losing billions but just not as many.

 

 

Hookers and Blow after the Risk CorridorPost + Comments (4)