The ACA subsidy formula right now is tied solely to the actuarial value of a plan. Subsidies are based on the second least expensive Silver plan for an individual in a market region before Cost Sharing Reduction subsidies are applied to boost actuarial value. The government pays a fraction of the cost of what it takes to get a person a 70% policy. This is a problem because it does not take quality of plans or networks into account.
There are an interesting pair of papers. The first one is one that Claire McAndrews of Families USA flogs on her quest to get better network directories and better networks.
We examined physician networks in 34 states offering plans through the federal marketplace during 2015 open enrollment using the rating area (geographic unit for marketplace premiums) containing each state’s most populous county. We analyzed 4 silver plans (the category of plans purchased by 69% of consumers)1: lowest, second lowest, median, and highest premium plans. One plan was excluded for a defective search engine, yielding 135 plans.
Using plans’ online directories between April 12 and 18, 2015, we searched for in-network specialist physicians in obstetrics/gynecology, dermatology, cardiology, psychiatry, oncology, and neurology (largest volume nonsurgical specialties) and endocrinology, rheumatology, and pulmonology (specialties treating common outpatient conditions).4 Accounting for patient travel, we applied a broad and narrow search radius relative to each rating area’s most populous city. Based on directories’ functionality, the broad radius was 160 km (100 miles) or, when unavailable (in 12%), the maximum search radius (typically 80 km [50 miles]). Our narrow search was half the broad radius….
Using the broad and narrow searches, 18 (13.3%; 95% CI, 8.5%-20.3%) and 19 (14.1%; 95% CI, 9.1%-21.1%), respectively, of 135 plans were specialist-deficient plans. Two plans included dermatologists and oncologists in the broad search radius but not the narrow radius. Three plans included endocrinologists in the broad search radius but not the narrow radius….1
Networks without adequate fairly common specialists are low cost products (on average) for two reasons. The first is the most likely reason that a specialist is excluded from a network is the network is paying below the minimal acceptable rate for a specialist. This would be an indicator that the network is paying fairly low rates. Secondly, networks that do not have core specialists will not be attractive to people who know that they need to see a core specialist. An individual with cancer will not buy a plan that does not have any oncologists in it. It is a risk dump so deficient networks are engaged in an adverse selection cherry pick.
The other article I found interesting with was an analysis of how people made decisions on quality and price when shopping on Exchange:
We found that consumers were much more likely to select a high-value plan when cost information was summarized instead of detailed, when quality stars were displayed adjacent to cost information, when consumers understood that quality stars signified the quality of medical care, and when high-value plans were highlighted with a check mark or blue ribbon. These approaches, which were equally effective for participants with higher and lower numeracy, can inform the development of future displays of plan information in the exchanges…. 2
It is a good public goal for individuals to choose high quality and affordable plans that meet their needs.
The current design of exchange subsidies does not allow that to happen in most cases and the design of the 1332 waiver program rules minimizes the opportunities for improvement at the state level. Let’s go below the fold to have a policy discussion:
Healthcare.gov is a passive shopper. It displays whatever is approved without engaging in any quality filtering or consumer choice improvement architecture. This has led to the opportunity for companies to spam the Exchanges:
A company can offer numerous plans that have minuscule differences in benefit configuration. Each plan counts as a separate entry in the Silver category, so a company can spam the Exchange with isomorphic plan designs. If a company is fairly confident that its base configuration is in the running to be either the #1 or #2 lowest priced Silvers, there is minimal marginal cost of slightly tweaking benefit designs by bumping up co-pays or shifting some deductible dollars to co-insurance dollars or otherwise making small marginal and effectively meaningless changes to a plan to spawn mirrors….
We know that most subsidy receiving individuals who are buying on the Exchange are post-subsidy price sensitive. Owning the #2 Silver and then seeing a large gap between #2 Silver and the first competing Silver means that almost every price sensitive shopper who is healthy (as they don’t need a narrow network) will buy Celtic/Ambetter. Individuals with known medical conditions are less likely to go to a narrow network plan because they already have relationships with providers that work for them. It is an attempt to buy healthy membership and dump sicker people to other insurers.
An active shopping Exchange like Covered California does not allow for spamming of the Exchanges.
Molina was not allowed to dominate the second Silver benchmark price point because Covered California is an active purchaser exchange. Covered California actively chooses the carriers that it allows on the Exchange and then actively minimizes the number of isomorphic representations of the same actuarial value on the exchanges….
The active purchaser model gives consumers meaningful choices. They can choose a cheap but low quality Molina plan for significant cost savings as it is the #1 Silver with a wide spread between its price and the benchmark Silver price. Or they can choose a higher quality Silver that is fully subsidized as that high quality Silver is the benchmark Silver. That decision process falls apart in an active purchaser exchange once there are two MCO based Exchange carriers, but the large gap between the first and second Silver gives consumers significant choices.
States with weak network adequacy regulation and using either Healthcare.gov or a passive buyer state based marketplace will see a race to the bottom on plan quality under the current subsidy attachment system.
Insurers will continue to attempt to pare back their networks while also engaging in risk dumps to other insurers with richer networks at the same actuarial level. We have been seeing that healthy Exchange buyers are extremely price sensitive and will churn easily if there is a significant gap between prices in Period 1 and Period 2. This makes sense because most healthy buyers are minimal users of healthcare and if they are subsidized, they don’t have a ton of spare cash lying around. Plans that capture most of the healthy members in a region will be profitable even if they have to take care of the sick members as well. If the low cost and low quality plans can also avoid the sick members, they’ll make a mint.
So what are the solutions for passive purchasers and low network adequacy regulation states.
The first solution is a local solution. States can adapt better network adequacy standards where networks will not be approved unless there are sufficient number of specialists in the network. This is what Families USA and the National Association of Insurance Commissioners are trying to get with their model network adequacy law. I like it as a first step but it is still a fairly low bar that they are asking for. Sparse networks will still be in play with the model act.
The long term solution is reworking the subsidy attachment points. This will take an act of Congress and a friendly president as the 1332 process’s constraints on federal budget neutrality will prevent most states that run their own Exchanges from substantially changing the subsidy attachment point. The change would be to have the subsidy attach to the second silver plan of “middle quality” where quality is a definition of network adequacy, care coordination, preventive medicine, and long term improvements. Low cost and low quality networks would still have a business opportunity to pick up the very healthy and the very young but reasonably decent plans that actually spend money to build a network and engage in care management of sick individuals would have a chance. This would cost money, and it would cost some real money but it is a plausible ten year goal to get a fix into the ACA.