APTC Hacks: Can an MCO plan Silver Spam by itself?

While I was misreading a tweet last night, I ended up thinking if an Exchange carrier who builds their products off of a Medicaid managed care organization (MCO) base can successfully use the Silver Spam strategy in regions where they are the only carrier.

 

AZ’s Pima County is gaining another #ACA insurer: Centene. Will sell HMO plans there, as well as Maricopa County. https://t.co/4899T8RFJf

— Bob Herman (@MHbherman) September 15, 2016

The MCO derived Exchange carriers tend to have very low rates. Centene’s networks in Chicago and elsewhere tend to be anorexic. The reason why there is only a handful of hospitals in a Centene network is that Centene pays their hospitals and doctors very little. Low pay means few providers sign up to take that rate. This is fine for people who are very healthy. They are highly likely to not use a service at all during the year, or to use common services that pretty much any hospital can provide.

In regions where there are multiple carriers offering plans and the MCO like Exchange carrier is the sole occupant of the very low cost niche this works out. People who are sicker or at least believe themselves likely to be sicker will sort themselves out into higher cost plans with broader networks. The more expensive and presumably sicker individuals get most of their care in-network at the higher cost and broader network carriers. Theoretically this should be balanced out by risk adjustment transfer payments as money flows from Centene to higher cost, broader network carriers. The current risk adjustment formula is insufficient to fully compensate the broader network carriers.

What happens if a MCO like Exchange carrier is the only carrier in a region?

I think it runs into problems if it uses the same model.

The big problem is the narrowness of the network. In a multi-carrier environment, the very narrow network creates a healthy pool. It is a pool where people buy because they either want to dodge the penalty or they want the peace of mind that they are covered for extremely unlikely events. In any given year, some number of people will come down with highly complex and expensive needs even out of a self-selected healthy pool. The MCO carrier ships these members out to much higher cost facilities and pays a per unit cost three, four or five times greater than their normal per unit cost.  The saving grace from the MCO point of view is that the self-selected risk pool won’t have too many people who get shipped out.  The other carriers cover the people who are disproportionally likely to need higher end care (and a decent amount of that higher end care is in-network).

If an MCO like carrier is the only carrier in a region, they get all of the membership and all of the health risk in the region.  This means they get all of the people who self-identify as likelier than normal to need high end care.  Over the course of a year, quite a few more people are being shipped out to out of network high end centers of care with very high per unit costs.

Does a pricing structure based on a risk selection cherry pick and a risk adjustment hack work for MCO plans when they are the only carrier?  Or does the MCO Silver spam strategy only work when there is another carrier able to absorb most of the bad risk?