BATNA and an acceptable status quo

The Hill reports that Senator Johnson (R-WI) thinks that the House Republicans are the major blocking force on funding CSR:

Other Republicans say Alexander doesn’t appear to have a grasp on the politics of the House, where anything seen as shoring up ObamaCare is likely to draw fire from conservatives.

Asked if Alexander was out of step with House Republicans, Sen. Ron Johnson (R-Wis.) said, “Just based on the communication coming out of the House since yesterday, I would say that’s an accurate assessment..”.”

The Best Alternative To a Negotiated Agreement (BATNA) is a good exercise to figure out where hard lines are. People will not agree to deals that make them worse off than doing nothing.

From the right, a CSR funding bill creates major problems during Republican primaries. The major political prize from the Republican point of view is the following two headlines next October:

” Obamacare premiums drop in SWING STATE X by 12% this year”

” Obamacare premiums due to Governor Z’s waiver are dropping another 8%”

The baseline premium drop would be the removal of Silver Loading that added 19% to Silver premiums this year. That drop is not the full 19% because of medical inflation but premiums are overpriced this year. States would be able to decrease off-exchange premiums as well by filing rapid “me-too” reinsurance waivers. Oregon just got approved for a reinsurance waiver that will lead to a 7.5% drop in premiums.

If there is no Murray-Alexander agreement to fund CSR, what is the alternative from the Democratic perspective?

  • A major club to beat up on Republican incumbents in swing districts
  • Silver Loading in all states
  • Expectation that good insurance on the Exchanges is now a Gold plan instead of a Silver plan
  • States with massive flexibility to innovate

The major political gains from the Democratic point of view on Alexander-Murray is wedging House Republicans between primary and general election electorates and getting at least some Senate Republicans as stakeholders.  The policy gains are more needed technical tweaks to waivers which should lead to more state-level buy-in and outreach funding for 2019.  The policy cost is funding CSR.  This precludes an opportunity to reset the actuarial value benchmark from 70% AV to a benchmark in the mid-80%s AV.

No agreement involving CSR is an acceptable outcome for Democrats.  They could agree to outreach funding, catastrophic plans, waiver modifications and employer mandate changes and still be better off with that agreement than no agreement.  Re-funding CSR is not a critical component of Democratic policy or political objectives over the long run.

The Democratic BATNA of doing nothing to CSR is an acceptable alternative.  And since one party has an acceptable outcome of no deal, they have the leverage to restrict the changes in the deal.


What about the Children

Call Congress and tell them to take care of the kids.

Catastrophic in metal risk adjustment

I spent a lot of time over the past couple of days being very confused. I had been reading Alexander-Murray and the Copper/Catastrophic section was confusing to me. Every other section I could find the example of the problem it was trying to address. However as the Copper-Catastrophic section was written, I saw vagueness that could accomplish the mission it is trying to address or certainty where it does very little.

I was wrong. Copper/Catastrophic plans for all ages is not a risk adjustment play. It is a possible slight actuarial value decrease that will fold Catastrophic plans into the same risk adjustment process. I have been told that by multiple sources who are in a position to know that Catastrophic is intended to be folded up into the same risk adjustment pool as the other Metal plans.

Why did I get this wrong?

I was trying to figure out why adding this provision mattered. There had been a lot of talk that identified a real problem; premiums are too high for non-subsidized individuals. I thought this Copper/Catastrophic plan was meant to address this problem. Every other section of the bill had very direct applications to known issues so I thought that this section would too. And the only way that Catastrophic can sustain a significant pricing advantage over Bronze plans is by keeping the split risk adjustment.

Catastrophic policies, from a benefit design point of view, are merely a funny looking Bronze plans. It has slightly lower actuarial value than the some Bronze plans but there is usually a significant pricing advantage for the same age/same company/same county Catastrophic plan compared to the Bronze plan. Most of that price spread is because the Catastrophic plan does not have risk adjustment outflows that fund Silver-Gold-Premium buying sick people built into the base premium. Bronze plans have to build risk adjustment outflows into the premium.

The rest of the bill directly addressed problems in ways that I think have a high probability of resolving the issue, so I thought that this section was doing the same thing.

Bronze to Catastrophic Price Spreads

I believe that the Catastrophic coverage eligibility expansion in Alexander-Murray is a risk adjustment play. I want to estimate what the potential risk adjustment related pricing increment could be using 2017 public data.

My data is here. I used the PUF Landscape file to identify all counties with both a Bronze and Catastrophic plan. I used the pricing for a single 40 year old non-smoker. I took the least expensive on-Exchange Bronze and Catastrophic plan by county/state dyad and calculated the difference in premium (Bronze-Catastrophic). Positive numbers means Catastrophic has a lower premium than Bronze. I did not adjust for the actuarial value of Bronze (allowable range 58%-62% AV in 2017 and Catastrophic has an AV of 57.5%) so I may be biasing the premium spread to be higher than a true apples to apples comparison.

Bronze plans are part of the Metal risk adjustment process. A portion of Bronze premiums are sent to cover the expenses of Platinum, Gold and Silver buyers. Catastrophic plans are risk adjusted only against themselves. Catastrophic dollars within a state only need to cover Catastrophic buyers.

This leads to a pricing delta which can be significant.

There are a few things to note.

1) Not every state nor every county within a state has a Catastrophic plan
2) Not every county has a Bronze plan
3) Something strange is happening in Texas and Oklahoma as BCBS-Tx and BCBS-OK Catastrophic plans are often more expensive than BCBS Bronzes in the same county.
4) Most other county/state combinations where there is a Bronze plan less expensive than the least expensive Catastrophic plan is because one insurer offers the low price Bronze but does not offer a Catastrophic plan.

However, out of the 2,362 county-state combinations with a 2017 Bronze and Catastrophic plan on, 1,847 have a lower priced Catastrophic plan than Bronze plan. Of that 1,847 counties with a less expensive Catastrophic plan, 1,170 counties see the same insurer issue the least expensive Bronze and least expensive Catastrophic plan.

Within this subset of 1,170 counties, there is an average of $73 pricing spread between these plans in these counties. I am making the strong assumption that the catastrophic and Bronze plans are sharing the same network and the same underlying administrative expense models. Most of the delta is due to the lack of risk adjustment transfers from Catastrophic to the higher AV metal bands.

This is the play that is being made in Murray-Alexander.

Morning thoughts on Alexander-Murray

Caitlin Owens at Axios was able to get the text of Alexander-Murray and we’ll go through it. Analytically, the most critical thing in the bill is that the Copper/Catastrophic expansion is a risk adjustment play. Before we dive into the details, I want to make a couple of general points.

First, I still think that the relative balance of leverage could have made CSR payments a non-issue. Insurers (except in North Dakota) had been able to price the costs into their premiums and this would have led to much lower net of subsidy premiums for a lot of buyers. Secondly, this is a bill for 2019 not 2018. Finally it is nice to read a bill that actually grapples with health financing and health insurance.

Let’s get into this:
Read more

Expanded Catastrophic plans

It seems that Senators Alexander (R-TN) and Murray (D-WA) have most of an agreement together on appropriating CSR funds and tweaking elements of the ACA.

One of the tweaks is expanding access to Catastrophic plans. Catastrophic plans can not currently receive premium subsidies. I had been scratching my head on this for a couple of days as Catastrophic plans are currently sold to people under 30 or have a hardship exemption. It has a similar to Bronze actuarial value. A standard Catastrophic plan has $7,150 deductible with 3 PCP visits covered before the deductible has to be paid.

This is a risk adjustment play to lower premiums.

Rebecca Stob, a health insurance actuary who wrestles with risk adjustment every day lays out the mechanical implications:

Right now in the ACA there are two distinct risk adjustment pools. The catastrophic pool shifts money between catastrophic insurers. The money is mostly covering healthy and young people. The other risk adjustment pool is the Metal pool. Bronze, Silver, Gold and Platinum buyers are all shifting money amongst the plans. Typically Bronze plans will send a significant proportion of total premiums into the risk adjustment pool while Gold and Platinum plans will be net recipients of risk adjustment funds.

IF the Catastrophic concession is to open up Catastrophic plans to all ages and includes APTC subsidies while not integrating Catastrophic into the common risk adjustment pool, we get a quasi-split risk pool. Very few people will buy Bronze plans as Catastrophic will be cheaper as the Catastrophic plans won’t be sending money to the Silver-Gold-Platinum plans while Bronze plans have to cover their own medical costs plus kick money into risk adjustment outflows. Few Bronze buyers means the Silver-Gold-Platinum plans all get more expensive as they will be receiving far less risk adjustment money coming from Bronze plans.

The Catastrophic pool will still be fairly healthy as the $7,150 deductible is scary to anyone with a chronic condition but premiums will be low as the pool just needs to cover their own costs without funding risk adjustment outflows to cover sick people in Silver-Gold-Platinum.

From a distributional point of view, this is good for healthy subsidized and non-subsidized buyers, no significant change for subsidized CSR buyers, slightly worse off for subsidized Gold and Platinum buyers as the relative price spreads will increase, and bad for non-subsidized metal buyers. It might be a net improvement for non-subsidized but very high cost buyers with severe medical conditions as they were always guaranteed to hit the Out of Pocket Max in any scheme but premiums might drop enough.

Update 1 If I had to vote on this legislation, based on the reporting of the past couple of hours, and with the proviso that I actually need to see the text, I would be a yes with at most modest grumbling.

CSR from your point of view

Yesterday, MAK in comments raised a very good and pragmatic implicit question; WHAT THE HELL DOES THIS MEAN TO ME AND MY FAMILY

Does this mean that the September payment covered the rest of the year? Because I’ve been looking (apparently in all the wrong places) for an answer to this simple question: when do the subsidies end?
We receive a substantial subsidy which makes our family policy affordable. If the subsidy goes away, so does our insurance. So perhaps a better question, in my case, is: when does my insurance end?
ETA: We’re in Pennsylvania, fwiw.

Everything that I have been writing about regarding CSR is happening behind the scenes. It will have future in front of the scene implications, but let’s keep things simple.

1) If you currently have an ACA plan, the CSR drama has no immediate impact on whether or not you are covered today, tomorrow or next month.

2) If you have an ACA plan with premium tax credits helping you pay the monthly premium, the CSR drama has no immediate impact on whether or not you are covered today, tomorrow or next month.

3) If you have an ACA Silver plan with premium tax credits and CSR assistance, the CSR drama has no immediate impact on whether or not you are covered today, tomorrow or next month.

So what about 2018?

1) If you qualify for premium tax credits, those will be paid normally.
2) If you qualify for CSR and choose to buy a Silver plan, you still will get the extra reductions in out of pocket expenses.

There will be strange things happening in relative pricing as we saw when we looked at Pennsylvania’s pricing this morning, but everything is going to function normally once you choose a plan for 2018.

This is a really good, pragmatic question.

Open thread for insurance questions!