Split filings and CSR worries

April 30th is roughly the date when insurers need to know what set of actuarial assumptions they need to use in order to build their filings.  Those filings are due to the state and federal regulators for initial review by the end of June. After the initial filings, networks and benefits are stable but rates will change.  Insurers can pull plans but they can not add plans.  Insurers need to make a final decision as to what they are going to offer and where by the middle of September.

I have been hearing consistent indications that many insurers are considering doing a double-double filing.  This will give them protection against any eventuality of the Cost Sharing Reduction subsidies getting pulled or any other Exchange uncertainty.

The first pair of filings will be based on two different set of actuarial assumptions. The first set is a business as usual set of assumptions where the rate increases will be fundamentally be driven by price and utilization changes.  This would produce numerous rate increases of less than 10%.  It would be a boring filing appealing to only actuaries and policy geeks.

The second variant of this filing is a worse case filing.  It assumes that CSR subsidies will not be paid in 2018, CSR costs need to be built into the index rate for all metal bands, and there will be minimal enforcement of the mandate, minimal effective advertising and the risk pool will be small and unhealthy.  This is fine from an insurer’s point of view.  They can price an ugly market and make it profitable as long as they know in advance how ugly the market will be.  Rate increases of 40% or 50% or more will be common with this filing as it will be the medical trend increase plus massive policy uncertainty increases.

This second filing has an odd distributional consequence.  It will be really good for Bronze buyers on Exchange.  The gap between a Bronze and the benchmark Silver will increase if they both see a 50% price increase.  The gap will grow by 50% all else being equal.  Bronze buyers on Exchange are likely to be higher income (200% to 400% Federal Poverty Level).  They will see better deals.  The people who are hurt are the non-subsidized buyers.

Off-Exchange plans are a set of all plans that are offered On-Exchange plus any other qualified health plans that carriers want to offer.  There are carriers that offer both On and Off Exchange plans.  There are carriers that offer only Off-Exchange plans.  A single corporate entity can have subsidiaries that offer both as well as offering only Off-Exchange.  Setting up a new corporate subsidiary with a new filing ID is fairly straightforward.

This is where the second split of filings could occur.  Carriers that are filing pessimistic case scenario where the no-CSR price increase is incorporated into the base index rate that drives all pricing for all metal bands can create a separate filing ID for only the off-Exchange market.  The corporate parent will file a pessimistic set of assumptions for the On-Exchange business.  The new entity will only offer off-Exchange filings that are priced on only medical trend.  This will lead to far less expensive off-Exchange plans as the new entity’s index rate is CSR free.  The same corporate entity will offer off-Exchange low cost no-CSR plans and then high cost, CSR incorporated plans. This provides protection for off-Exchange buyers while giving the insurers protection against CSR.