On the whole I want as many insurers and states to engage in a Silver Gap strategies. However there are situations where it can be used offensively to bugger and beggar competitors. Let’s walk though an example.
The scenario needs one insurer that actually wants to cover people in a county. It also needs an insurer that for political/strategic/publicity reasons wants to be on Exchange while selling as few policies as possible. I can think of at least one situation where that is an accurate assessment of the pricing configuration. The way that a company stays on Exchange but does not sell many policies is to offer a plan design that meets minimum requirements but is a horrendous value proposition while being priced very high compared to its competing plans.
Silver Spamming strategies by the active insurer enable this sit out and wait strategy by the passive/avoiding insurer. Mild Silver Gapping strategies where the active carrier offers a low price narrow network Silver and then a broader network plan priced 12% higher as the benchmark Silver when the passive Silver is priced 80% above the benchmark will also allow for a passive presence with low enrollment.
However if the active carrier decides that it wants to screw its competitor it can by embracing an extreme Silver Gap strategy. It would offer its low cost narrow network plan only. All of the sudden, the passive carrier’s Silver is now the #2 Benchmark Silver. The #1 Silver by the active carrier has extremely low post-premium prices so it will suck in all of the healthy risk in the market. The plan that was supposed to be a placeholder gets significant membership that the offering carrier was not anticipating and it is higher risk membership.
So in odd corner cases like this, the Silver Gap strategy can be deployed offensively.
I'mNotSureWhoIWantToBeYet
Is there a way to prevent pathological gaming of the Exchanges like this? Would “continuous” enrollment help? I.e. AC-AS decides to punish Betna and introduces an appropriate plan. Can that only happen at the start of the Exchange year, or can they do that at any time? If they can do it any time, would it help combat the pathology to let people in that universe (that state or that area served by the plan) to have the option of adjusting their plan whenever new options become available that would be appropriate for them?
It seems that if companies have the opportunity to game the system, then customers should have the same opportunity to take advantage of the gaming – to help discourage the practice if noting else. If AC-AS and Betna want to have a Black Friday sale, then people should have the opportunity to make them think twice. If people only get the opportunity to change plans once a year (unless there’s an appropriate “event”), then the gaming seemingly can only help the clever companies which is not good for a sustainable system.
Am I confused by what you’re saying?
Does the “second silver” benchmark rule need to be changed? Would “2nd silver applied unless there are less than 5 plans/vendors available. If there are less than 5 then …” make more sense and be more resistant to gaming?
Thanks.
Cheers,
Scott.
Richard Mayhew
@I’mNotSureWhoIWantToBeYet: All good questions and the short answer is I don’t know.
I am not a big fan of allowing people to switch consistently as that destroys risk pools and insurance becomes a pre-paid buyers club with mad risk adjustment problems.
As far as the 2nd Silver, changing that subsidy to “Here is what the Government would spend to cover this person in this county…. go do your best ” like the Medicare Advantage billing system could be a better solution.
Applejinx
So, do you figure that now every single active carrier will go for this exploit? Seems that if you’re able to identify it, so are they. Plus, now you’ve told them :)
Richard Mayhew
@Applejinx: What set of exploits?
The beggaring thy neighbor one is when emotions really take over from decision making when Company A’s leadership gets non-monetary psychic reward for screwing Company B.
The other two situations are happening in at least several states. The APTC hack does not work when the plan designs from multiple competitors are tightly clustered around a low cost converged configuration. The minimum requirements for it to work is one company with a signficantly lower priced Silver plan. Gaming it out, a #1 Silver that from Company A that is only say $3 cheaper than the #2-7 Silvers offered by Company B-E won’t do much.