APTC Hacking should be a short term hack

In a perfectly competetive market with numerous carriers offering plans on and off Exchange, my hobby horse of Silver Gap and Silver Spam analysis should be a short term event. It would have been a viable strategy in 2014 and 2015 as carriers had different assumptions about what the market looked liked and priced differently. But as more data came in and carriers could look both at their own claims information and how they are performing in regards to their competitors, we should have seen Silver segmentation convergence.

there is a strong incentive for insurers to offer at least a Silver plan that is either the cheapest two Silvers or very close to the subsidy cut-off…

This segment in a competitive market should see a cluster of plans that are at the subsidy line plus or minus a couple percentage points. These plans are the first segment. They tend to be very restrictive in all modifiable aspects. HMO’s with gatekeeper and strict authorization processes are likely to be here while open access PPO networks are unlikely to be in this segment. The networks will tend to be very narrow as the pricing model is Medicare plus a small kicker (Where Mayhew Insurance sells, the pricing on this segment is Medicare plus 3% to Medicare plus 8% depending on the insurance company) and insurance companies are avoiding the high cost providers if they can. These are the super narrow networks where the goal is to get a Silver plan that is either top 2 or really close to top 2 in pricing. They are aimed at people who are getting subsidies are extremely aware of every additional dollar they have to spend on monthly premiums. If we had a public option plus 5% scheme in place, it would fall into this segment.

The 2017 plan year is when, in a well functioning market, we should have seen dramatic convergence as the carriers had enough time and enough claims experience to figure out their markets.

And we are seeing that in some areas. For instance, Marion County, Indiana (Indianapolis) has two separate companies offering the #1 and #2 Silvers. The least expensive Silver plan for a 40 year old single non-tobacco user is from Ambetter. They charge a full premium of $284.29. The second least expensive Silver which sets the subsidy benchmark is from Care Source. They charge the same individual $285.99. This would qualify as a “Silver Spam” county if the two plans were offered by the same carrier.

This is a demonstration of a converged market. Market forces have driven two Medicaid like managed care organizations to offer very similar products at very similar prices.

If we had deep insurance markets, this is what we should have expected to see in most of the country. And this is what I expect to see over the next couple of years.