I saw an interesting report from Deloitte on the profile of people who are buying on Exchange insurance products. One thing stood out to me that I need to chew on some more. Namely, narrow networks are most attractive to millenials (P.21).
This to me makes intuitive sense as younger indiviudals are far more likely to be healthy than older individuals. Getting old sucks.
I find it interesting that income is not a good predictor of willingness to look at narrow networks. A narrow network that is 10% to 15% cheaper than a broad network should, all else being held equal, should be very attractive to someone who does not have a lot of cash. Health status or the awareness of risk of the health status swamps cash constraints. That to me is surprising. The narrow networks are effectively acting as adverse selection filtering systems as they are scooping up young people who are very healthy and very low cost while the broader networks are grabbing older people irregardless of their income levels and thus they are the cost sinks of the exchanges. This works as each company’s risk pool is the collection of all of its plans offered in a single band in a state so Mayhew Narrow Silver and Mayhew Broad Silver are paying into the same risk pool, so the young and healthy are still subsidizing the old and less healthy. The problem emerges if only a company offers a market leading narrow network product. The cash and risk shifting mechanism of risk adjustment will mostly balance out the risk over time, but it takes eighteen months for cash to come from a healthy company’s risk pool to a sick risk pool.