Insurer expansions — or getting that one wrong

If you had asked me in January to place a bet on the number of insurers that would file plans for 2019 by early July and you offered me the following options:

  • About the same
  • Significantly fewer insurers
  • Significantly more insurers

I would have taken the under.

If you had asked me if there would be a “bare county” problem on the Exchanges, I would have been surprised if there was not at least one state currently struggling to cover their rural areas.

I was wrong on both counts.


And I owe it to you to explain where my model and thoughts went wrong.

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Expect big MLR checks in the fall of 2019

Many individual market buyers in several states should expect to see surprising checks in the fall of 2019. These will be Medical Loss Ratio (MLR) rebate checks. Insurers are required to spend, on a three year rolling average, 80% of the premium dollars on claims and quality improvement expenses. If they spend more than that, that is fine. If they spend less than 80%, the isnurers need to cut checks to their policy holders.

Over the past couple of years, there have not been large checks cut as insurers weren’t making large profits anywhere in the individual market. That is changing. 2017 looks to have been a very profitable year for insurers. 2018 looks to be even more profitable. There is a good chance that the 2016-2017-2018 time period will produce several states with an average MLR well below 80% as the first quarter results plus initial 2019 rate filings strongly suggest that insurers in many states overpriced their premiums for 2018.

The Kaiser Family Foundation has a raw MLR table. Raw MLR is Claims/net premiums. It is not the MLR that CMS uses to calculate rebates. The CMS MLR tends to be a point or two higher in general than a raw MLR.

I think the states that have a 2016-2017 raw MLR average of under 85% where 2016 raw MLR is greater than 2017 raw MLR have a good chance of seeing significant rebate checks in 2019. Three states qualify:

  • North Carolina
  • Alaska
  • Missouri

These three states had low levels of 2018 insurer competition (Alaska 1 insurer for the entire state, Missouri and North Carolina 1 insurer for most of the state).

Another seven states have a raw 2016-2017 average MLR of less than 85%.  I think Arizona and Oklahoma are the states that are most likely to see big pay-outs as the no pay-out 2018 MLR target is greater than the 2017 MLR.  Again, these states are low competition states.  Oklahoma had a single insurer for the entire state and Arizona’s counties were all single insurer.

Eyeballing the data it seems that MLR rebates are likely to occur in low competition states rather than high competition states but I don’t have firm proof on that yet.

I will be curious as to how the politics of significant MLR rebates play out as they pay out. I had a cynical moment last October when I thought about this for the first time in the context of CSR payments:

in the fall of 2019, rebate checks start showing up just as final rates are to be approved. If there is still CSR uncertainty, rate regulators will have strong incentives of getting great press on being tough on the insurance companies by forcing them to hand out very large checks to tens of thousands of residents….

And then in the fall of 2020, ambitious state insurance commissioners will be handing out rebate checks in late September as they are running for Governor or the Senate. Or if they are a bit less ambitious, they are supporting the incumbent party by handing out checks and injecting new federal money into the state and making the fundamental background economic picture a bit better than it otherwise would have been.

I might be getting too cynical today.


Is that how things will play out?

Changing spreads in 2019

The Kaiser Family Foundation is keeping track of 2019 rate filings for the ACA. Their Table 1 has the least expensive Bronze and Gold plans as well as the benchmark Silver plan in a single major city in each state that they’ve updated. This is very valuable albeit incomplete data as the story in central cities can and often is different than the story in rural areas.

What I find interesting is the changes in the spreads from 2018 to 2019. For people who are eligible for premium tax credit subsidies, those subsidies are calculated based on the benchmark Silver plan. The benchmark is the second least expensive Silver plan in a county if there are multiple Silver plans or the premium of the only Silver plan. If a person buys a plan that is less expensive than the benchmark, they get all of the savings. If they buy a plan that is more expensive than the benchmark, they pay all of the incremental costs.

In 2018, we saw significant spreads as the termination of Cost Sharing Reduction (CSR) subsidies led to most states putting CSR costs into only the Silver plans which made Gold and Bronze plans comparatively cheaper. Now that insurers have more policy certainty, I am curious as to how the relative prices are projected to change in 2019 compared to 2018.

It varies a lot. Some cities like Burlington Vermont will see Gold and Bronze plans get at least $100 cheaper relative to the benchmark in 2019 than 2018. We should expect significant increases in subsidized enrollment as Vermont will be Silver Switching this year instead of doing nothing like they did in 2018.

Richmond, Virginia will see the relative prices of Bronze plans increase slightly while the least expensive Gold plans will get far cheaper. This makes the unlikely assumption that Medicaid expansion will not alter final pricing.

At the same time, subsidized folks who are not buying the benchmark plan will be slightly worse off as the least expensive Bronze and Gold plans have wider premium spreads this year than they did last year.

The important take-away is that the ACA is a county by county story with very idiosyncratic premium shocks built into the subsidy structure.

Actuarial value and plan choices

High actuarial value is better, right?

Well it depends.

It really depends on what you assess your prospective personal health risk to be and how much of a hit you can absorb. And from there, it is a matter of interrogating the benefit design of plans.

Let’s look at two Gold plans I designed using the 2019 actuarial value calculator to tease this out a bit.

Plan A Plan B
Deductible $500 $2,000
Coinsurance after deductible (you pay) 30% 0%
Maximum Out of Pocket $6,000 $2,000
PCP Sick Visit No cost sharing Deductible applies
Generic Drugs No cost sharing Deductible applies

What plan is more attractive if we assume same insurer with the same network?

What plan has the higher actuarial value?

Which plan is better?

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Silver Gapping in Iowa and Tennessee: 2 Separate tales

Iowa and Tennessee are, in some ways, very similar states regarding the ACA. They are both mostly rural and their political elite has worked hard to create numerous “outs” for healthier and prospectively low risk individuals from the ACA. They both have very high premiums and comparatively high risk scores.

Yet, in 2018, they were very different. Tennessee had some multi-insurer regions (Nashville and Memphis) while the local Blue Cross affiliate offered plans in most of the state. BCBS-TN aggressively Silver Gapped with some of the biggest premium spreads in the entire country between the least expensive Silver and the Benchmark Silver.

Iowa had a single insurer for the entire state. Wellmark, their BCBS affiliate, exited the market. Medica offered a single Silver plan for every county so there was no cost advantage to buying a less expensive Silver plan.

In 2019, Wellmark is re-entering Iowa’s market. Several insurers are expanding in Tennessee so Nashville, Memphis and Knoxville, and the northeast Tri-city region will have multiple insurers. This will lead to significantly different on the ground realities for subsidized buyers.

Non-subsidized buyers will directly benefit from increased competition. They can elect to stay in their current plans or see if there is a better deal elsewhere.

Subsidized buyers will likely be worse off in most of Tennessee. This is especially true for healthy buyers who are very price sensitive.  I am assuming that the new entries think that they can price at or below the current very high Silver Benchmark plans offered by BCBS-TN. If they price at the same point as the benchmark plan, there will be no change in relative post-subsidy premiums paid by the individual. Far more likely the new Silver plans will be significantly less expensive than the very high benchmark plan. This means that subsidized buyers in these regions will see lower subsidies and higher post-subsidy premiums. Currently some families can earn well over 200% Federal Poverty Line and qualify for a $0 net of subsidy premium Silver plan. Those families will see higher costs next year assuming the new entries offer at least one Silver plan lower than the current benchmark.

Iowa is a single insurer state for 2018. Medica covers all 99 counties with a single Silver plan. Next year, Wellmark, the local Blue, is re-entering the market. Medica only offered a single Silver plan. There is no chance for someone to benefit from the spread between the least expensive Silver and the benchmark Silver as they are the same thing as Brad Wright and I explained in the Des Moines Register last winter.

  1. In all scenarios except the one where Wellmark only offers Silver plan(s) that are priced precisely, to the penny, alike the Medica plans, many subsidized buyers in Iowa will benefit from new competition as there will be some spread between the least expensive Silver plan and the benchmark plan.

Competition always benefits the non-subsidized by at least increasing the possibility space. Competition has specific local impacts depending on the decisions of insurers and their strategies from the previous, low/no competition year. We must be aware of those changes and distinctions.

An extra $100 deductible does not buy much

I was curious. What does $100 more in deductible buy in terms of actuarial value?

It depends but the short answer is not much.

The graph below shows how much a $100 increase in deductible buys in terms of actuarial value. I used the 2019 CMS AV calculator with the Bronze tables. Deductible is combined and embedded with no other cost sharing. This is a bare bones plan.

This is because health care costs are so skewed to the right. Half of the population barely touches the system so the first $100 of deductible captures most of their health care spending and the first $500 of deductible is almost entirely their annual spend. The declining marginal purchase of AV per $100 spent on deductible is real and big.

By the time the deductible is going from $3,000 to $3,100, very few people are actually running up charges to that level. It buys half a point of actuarial value for this jump. By the time the last $100 is added to deductible for the skinniest plan possible with a $7,900 out of pocket maximum, the AV bought is .22 points.

The trade-off to buy an extra AV point at the tail end of the distribution is an extra $400 to $500 in deductible. This implies that a Copper plan with a 50% AV could probably see a $12,000 to $13,000 deductible.

My data is here again:

Whose costs: My costs

The Kaiser Family Foundation does frequent polling on a wide array of issues. They have a recent poll on politics and they probed a bit on what people actually mean when they say that they are concerned about health care. The key thing was personal costs and not systemic costs:

When asked to say in their own words what specific health care issues they most want to hear the 2018 candidates discuss, health care costs are the top issue mentioned by both Democratic-leaning health care voters (31 percent) and Republican-leaning health care voters (55 percent). The other health care issues vary in importance by partisanship. About one in five (18 percent) of Democratic health care voters say they want to hear candidates discuss universal coverage and about one in ten (11 percent) mention concerns about quality of coverage or care.

This is something that I need to remember as I am focused far more on systemic costs and insurance functionality instead of cost spreading functionality of insurance policies. Most people don’t give a shit that a plan with significant non-preventative services that are pre-deductible is bad insurance that puts significant cost sharing burdens on folks with chronic conditions and one-off catastrophes because most people don’t have a trainwreck of a year. Instead they barely touch the medical system so a $300 claim is a big personal deal or a $1,900 out patient procedure that is mostly going to land on their deductible is a massive expense.

This is just something that I need to keep in mind on the politics and lived experiences of health care financing.