Meaningful difference, APTC Hacking and optimization problems

The loose meaningful difference regulation produces some desirable, from Center for Medicare/Medicaid Services (CMS) point of view, outcomes. The biggest positive outcome from CMS’s point of view and the point of view of PPACA supporters is a good Congressional Budget Office (CBO) score. The subsidies are based on the price of the second lowest Silver. Using these loose meaningful difference regulations, insurers can Silver Spam so that the #1 and #2 Silver are either priced at the same level or there is a minuscule gap. Silver Spam strategies are attractive to carriers that offer low cost on-Exchange plans that won’t sell well off-Exchange so that usually implies a very low cost provider network where the providers are paid at near Medicare rates. The other way of reducing total costs and thus achieving a better CBO score is the low level of gap between the #1 and #2 Silver means fewer people sign up so total subsidies are fairly low.

If CMS was to enact one of two sets of strict significant difference criteria (the first would be a clear price difference of X%, while the second would standardize benefit structures while allowing variance on plan type and network) the CBO score would get worse because PPACA would become more expensive. The level of subsidy would increase because the second least expensive Silver would most likely become more expensive and the Bronze offerings may become comparatively less expensive on-Exchange for subsidized individuals. And if carriers adapt either a pure Silver Gap where a single carrier owns both the #1 and #2 Silvers or a soft Silver Gap where there is a large spread between Company A’s #1 Silver and Company B’s #2 Silver, the covered population will increase significantly as the post-subsidy price will make Bronze much more affordable for individuals earning over 200% FPL.

Right now the regulation is optimizing to minimize bad CBO score headlines. The Silver Gap strategy, from the CMS perspective, maximizes enrollment at the cost of bad CBO headlines.

The Silver Spam and Silver Gap strategies both derive from the very broadly defined “meaningful difference” regulation. CMS for Healthcare.gov is supposed to insure that the plans offered on Exchange are different enough for people to be able to make an informed choice. Loose interpretation by CMS has enabled the Silver Spam strategy. This is a problem as it takes away real choice from buyers as well as limiting the health and size of the risk pool. Slowly it looks like CMS is tightening the regulation.

The 2017 Meaningful Difference regulation was a bit simpler than the 2015 and 2016 regulations as CMS got rid of the eligibility tier determination element as well as the HSA eligibility criteria. Now, meaningful difference within a single band of coverage is a bit tighter(P.48, Section 12)

CMS will review each subgroup to determine whether the potential QHPs in that subgroup differ from each other based on the criteria of one or more material differences in cost sharing, provider networks, and covered benefits.
Cost Sharing
For plans to be considered materially different on the basis of cost sharing, QHPs within the subgroup must differ in at least one of the following ways: 1) having an integrated medical and drug maximum-out-of-pocket limit (MOOP); 2) having an integrated medical and drug deductible; 3) having multiple in-network tiers rather than only one; 4) $500 or more differencein MOOP; or 5) $250 or more difference in deductible. CMS will not consider the following criteria in determining whether plans are meaningfully different: 1) having an in-network deductible rather than only a combined in/out-of-network deductible; and 2) having an in-network maximum-out-of-pocket MOOP) rather than only a combined in/out-of-network MOOP.
Provider Networks
For plans to be considered materially different on the basis of provider networks, the plans within the subgroup must have different provider network IDs.
Covered Benefits
For plans to be considered materially different on the basis of covered benefits, the plans within the subgroup must differ in the coverage of one or more benefits that display to consumers on the HealthCare.gov website. Plans will be considered meaningfully different if they vary in the coverage of at least one of the following benefits…….

In my opinion, this is still not enough meaningful difference but it is an improvement from 2015 and 2016. CMS is slowly moving towards an administrative fix that will increase the practical value of Advanced Premium Tax Credit subsidies which should make the risk pool a bit larger and a bit healthier. But that transition process is not fast enough.