This is a follow-up from yesterday’s post on how to create an accidental high value, low premium single payer individual market in states where there is only a single insurer. One of the big questions is what happens if there are no insurers in a state. I don’t think this would be a likely scenario as the incentives to make a boat load of almost risk free money are too strong.
We need to divide the decision process into two universes. The first is on-Exchange and subsidized buyers who make less than 400% of Federal Poverty Line. The other segment of the market is everyone else who is not getting a subsidy on or off-Exchange. This second segment could see no affordable plans offered.
Let’s assume that there is a single insurer offering plans on an Exchange in a state or a region. They’re objective is to make as much money as possible. If it is a quick pump and dump, the plan would be to raise prices as high as possible in year one and accept that competition will come back into the region/state in Year 2. If it is a longer strategy, the goal would be to raise prices to a point where a mint is being made but below the point where the hassle of an out of region competitor coming in can undercut pricing once start-up and network building costs are accounted for.
So what is the optimal business strategy in this scenario?
The first part of the strategy is to get as much of the eligible population covered. This means making the monthly out of pocket premiums as low as possible for as many people as possible. This could be done in two ways. The first is to offer a barebones and extremely efficient product. That won’t happen as building that type of product is time consuming, expensive and alienates quite a few providers who are needed for other lines of business. Instead, the Split Silver strategy of building two types of Silver plans to hack the subsidy formula is more effective. One Silver would be a basic HMO with a modest network (say 60% of the providers) that tries to pay providers Medicare plus a bit. The other Silver plan would be a PPO with the full network paying 100% Commercial rates (Medicare +50 or higher usually).
This does two things. It is a recruitment and retention tool as well as a risk management tool. .
The subsidy gap acts as a membership recruitment tool because young and healthy individuals will pay very little out of pocket. The young and the healthy will choose the basic Silver plan in large numbers. Since there is a large gap between the #1 and #2 Silvers, their personal contribution will be very low and they will get $10 or $20 per month workth of value from their plan. We know that people who believe that they are going to be fairly sick in the next contract period have a higher willingness to pay for insurance and conversely the expected low utilizers will have a low willingness to pay.
A single silver plan would not be a good business decision as it would force people to pay their full expected personal contribution. This would drive away healthy individuals with a low willingness to pay out of pocket.
The HMO narrow network will also be attractive to self-identified healthy people. The broader PPO network will be attractive to people who believe that they will be sick and expensive over the course of the year. Health management attention will be overwhelmingly focused on the PPO members from the moment they sign up even if there is no claims data to drive decision making.
Bronze plans would be offered based on the HMO narrow network. For quite a few people, these plans would have no monthly premium due to the subsidy gap. Gold and platinum plans may also be made available. Platinum would be based on the PPO high cost model while Gold might be offered in both flavors as the less expensive Gold configuration could be attractive and affordable to people who make over 200% FPL.
Risk adjustment would not be a worry in the first year. However this would be an excellent opportunity for the insurer to cycle as many people as possible through risk adjustment data collection screenings by sending CRNPs or PA’s to the houses of people suspected of being more likely than not to have a persistent chronic condition. The data would not be useful in the single insurer year as the net flow of money would be zero. The 8th Floor which is in charge of Bronze plans might send money to the 11th floor which is in charge of Silver and Gold plans. However, it builds a deeper database for future years so when there is renewed competition, the single insurer knows that Mrs. Jones has Type 2 diabetes and an endocrinology issue that have to get coded in order to maximize risk adjustment revenue as well as maximize the efficiency of health management resources. This is quite valuable to the insurer.
Based on this type of strategy, I don’t think there is a business case for all insurers to abandon the Exchange in any state. The key constraint is that the lowest priced Silver must be priced high enough to cover all claims costs. If that constraint can be met, the sole remaining insurer can make a lot of money by staying in the state and on the Exchange.
Premiums are up higher than ever, healthcare spending is still growing, and people are getting their tax refunds confiscated thanks to ObamaCare.
ObamaCare is on life support. Time to #PullThePlug!
@Rolling Along: Ummm. Rates increasing is expected in a positive inflation world, what matters is realized increases versus projected, and on this front, premiums are fine. Health care spending of course is growing, as there is medical care inflation and more people with insurance. People who do not carry insurance are getting penalized through the tax code, as per the law.
This is trolling in 2016? Sad! We need #BetterTrollz!
I wasn’t speaking of the penalty, but the income estimates. Ex. , people on commission don’t know how much they’ll make in a given year, making an “estimated” income difficult. I know a car salesman on ObamaCare, he underestimated his income last year and now is facing a super stiff tax bill instead of a refund! He’s vowing to vote for Trump now.
Can a single insurer use anticompetitive measures (iirc they are exempt from antitrust law) to ensure that competition does not enter the state? (Exclusive contracts with providers that pay them well, better than could be afforded in a competitive market? Simple collusion?)
Could a large insurer who was willing to lose money for a couple of years (subsidized by operations in other states) force a single-insurer state?
How do these fat profits interact with the MLR requirements?
@Rolling Along: I’m okay with significantly expanding subsidies with either carry forwards or call backs instead of direct clawbacks. Would you help advocate to drop another $20 or $30 billion a year on subsidies?
BTW, your buddy should have updated his profile as soon as he had a good month or two to automatically adjust his estimated credit so he would not get whacked with a big bill.
@Rolling Along: Oh no! The used car salesmen are abandoning the Democratic Party! In drove! (Haha see what I did there? BOTH things? I slay me.)
More burdensome federal regulation on the average joe, eh?
We cannot afford to keep expanding entitlements with our level of national debt. Our current entitlements are underfunded as it is–to add more corporate welfare in the form of insurance subsidies would drive it up even further.
What we need is market competition, not burdensome government control.
Have “Healthcare 401(k)s” +selling insurance across state lines+tort reform=truly affordable care!
@Fred Fnord: Let’s work backwards:
a) MLR — 80% of premiums must be spent on either claims or quality improvement measures so there is a limit of 20% for administering a plan plus hookers and blow. As premiums go higher, that 20% goes higher and more money goes to hookers and blow. The major legal constraint is what will the state regulator allow for rates. The economic constraint is how high are premiums before it makes sense for another insurer to re-enter the market (if there is an in-state insurer with a current license and a commercial network, the cost of re-entry is fairly low).
b) Possibly, but that would require very deep pockets for a fairly small market segment (4-5% of total population) and then see #1, cost of re-entry for other insurers that operate other products in state is not that high.
c) IANAL so I don’t know.
Who else likes pie? I am really hankering for a good Dutch apple pie right now….
I’m craving strawberry rhubarb.
Ignoring the troll, why would anybody ‘make a boatload’ of money by collecting rents on the state’s population and then not paying out for healthcare? Are you suggesting something like that, or do you only mean ‘make it up on volume through being the only intermediary for the whole state, while still sticking to government-imposed limits’?
That did kind of jump out. Maybe you mean ‘handle all the business for the state’, which doesn’t suggest arbitrage nearly as much as ‘make a boatload of money’. The tone of this stuff matters, though I am obviously real interested if it’s NOT tone and you are actually suggesting ways for insurance companies to rape the healthcare ‘consumer’ (already a sketchy framing of the situation, as we well know!)
@Applejinx: on Exchange with subsidies there are hard limits to what someone can pay. Using a large Silver gap strategy the effective premium payment levels go down significantly which should bring in a lot of people currently subsidy eligible but not covered in. That group tends to be fairly healthy/cheap.
So current enrollees are no worse off and may be better off, new enrollees better off but Feds pay way more in subsidies as more ppl sign up and 2nd Silver is set very high.
Insurer is better off as they get a large, healthy pool that will pay premiums for year, insured no worse off and may be better off, state providers better off. Feds are losers as more $$ out but buys a lot more covered lives.
Rates never went up before obamacare, right?
Mike in NC
The troll admitted last night he had problems with Ritalin. In other words, he’s a meth head. Makes perfect sense given the ridiculous bullshit he posts about alpha males, feminism, etc. Sad!
Richard, if you’re still around, the more I think about this hack, the less I like it, because it leaves people vulnerable. Suppose a state exchange has a “large Silver gap” year with one (or more) insurers. That seems good for people buying insurance because the subsidies cover most of the premiums at the other metal bands. As you say, this would cause people to sign up (recruitment tool) once they figured out what was going on – I’ve never been on the exchanges, so I don’t actually know how people would figure this out, would the insurers advertise this? That seems crazy.
But if a new insurer came into the market in the next year with a Silver plan that cut the gap down, all of the subsidies would drop, right? How do people find this out ahead of time? People counting on these premiums being covered and staying on their old plans would have their expenses go up in a way that they can’t predict. This hack seems to leave people vulnerable to market behavior in a dramatic way, that probably wouldn’t be obvious ahead of time.
OT: No gun sale for you!
So yeah, no cookies for these assholes either, but at least the sale isn’t happening.
@benw: you would see the effective price on HC.gov
And yes once a new insurer reenters the gap collapses and effective prices go up and people will be uncovered again. My preference is continual coverage but 1 year of cheap coverage is better than 1 year with no coverage, imo
So apparently posting “Hillary sux” 50 times a day is trolling, but only when this one person does it.
My conservative Father-in-law is a tax preparer and attorney, was at a recent gathering, complaining about penalties that can be handed out by the IRS to the person preparing the taxes if the paperwork regarding health insurance wasn’t correct or if, “they used the wrong form” I usually choose to help in the kitchen rather than engage in such discussions, but I’m curious as to his complaint as he’s usually at least a little grounded in reality. So, can indeed tax preparers be given fines/penalties for incorrect information given to them by a client? Or is he spouting right-wing media again?
@Mike in NC:
Why would you believe anything R2R says about himself? He’s a troll – he’s trolling you. Anything he says about his personal life is very likely a lie intended to score some kind of points in the weird trolling scavenger hunt role playing game he’s playing with himself. “Ooh – I just got a liberal to say something bad about people on Ritalin – 10 points for Slytherin!” “Ooh – I just got a liberal to respond angrily to my post about how Jeb Bush has it in the bag – 5 points!” and so on.
There are pretty strict legal liability issues attached to accounting (or doing taxes).
I’m not sure what the penalty would be, if someone gave you incorrect information for healthcare or what due diligence you need to do as a preparer.
Basically you cant just take your client’s word for it that the numbers they give you are correct. You need to do some level of verification, i.e. check the W2, 1099, etc.
@Chyron HR: Yup.
In fairness, I have said many critical things about Hillary, all of them more nuanced than ‘Hillary sux’. That’s why it matters when I turn around and explore positive or practical things about supporting Hillary for president.
Other people who come off as ‘Hillary sux’ will also have to decide to back her in the general election, which is why the nuanced approach is helpful and your approach is apparently not. You might try looking at that a little bit: Hillary can’t do it on the strength of her winning, sincere personality alone ;P
(note: I’m not proposing to elect a prom queen here, so let’s not jump to strange conclusions over a bit of well-earned snark)
@Applejinx: And there really is a big difference between someone who is honestly trying to relate info and opinions and someone who just keeps throwing crap against the wall. A lot of the accusations about “trolling” is really a different conversation about people who believe things that are demonstrably untrue and don’t accept the reality. A troll is someone who simply comes in to be a jerk. The line on that is fuzzy and arguable so sometimes… drama. I include myself in the group of people who sometimes open their mouth when they should be quiet.
@gene108: Which is why I smelled the whiff of BS on his story. He often takes the right-wing narrative as fact on issues and then is genuinely surprised when it turns out not to be true. The King decision is a prime example. He was going on last year about how Obamacare was set up to punish states that don’t make an exchange (The central argument of the King plaintiffs) and seemed genuinely bewildered when I pointed out that that *wasn’t* how the law was intended to work. HE had absorbed the RW narrative and had no idea that it wasn’t true in any aspect.
Another reason to remember what at stake in the upcoming election. I expect all the BernieBros have their parents health care in a pinch. Not so much those ungrateful working class Blacks and Hispanics who have been voting for Hilary.