News: Tennessee’s empty shelf problem appears to be fixed! Blue Cross of TN will sell coverage in Knoxville area.
— Sarah Kliff (@sarahkliff) May 9, 2017
My mental model of bare counties being covered by other in-state insurers that are looking to maximize the revenue from a local near monopoly is being tested in Iowa. It is being confirmed in Tennessee.
Humana pulled out of East Tennessee. Now Blue Cross and Blue Shield of Tennessee is moving into the counties that Humana abandoned.
Furthermore, this is an excellent test of my Silver Gap argument. BCBS-TN offered two Silver plans in each county it operates in Central Tennessee. It offered good deals to subsidized buyers because there is a wide spread between the benchmark Silver and the least expensive Silver. Humana only offered a single Silver plan in the Eastern Tennessee counties it is leaving. It offered expensive post-subsidy plans.
Perry County is one of a cluster of counties in Central Tennessee that has the biggest spread in the country. It is an extreme Silver gap at $97.62. There is a single carrier, Blue Cross and Blue Shield of Tennessee that offers two Silver plans. Roane County is the other extreme. A single carrier is also in the market, Humana. However Humana is offering only a single Silver plan which means the spread between the benchmark and the cheapest plan is zero. There is no chance of a good deal for a Silver below benchmark….
If that family of three is a pair of 50 years olds and a 10 year old, the Perry County family can earn up to $45,000 a year before they have to pay a dollar for their Silver plan. Bronze plans are zero dollar premiums for this family when they earn just north of $75,000.
The same family in Roane County pays 7.2% of their monthly income for a Silver plan if they earn $45,000 a year. Their zero dollar Bronze plan ends once they earn more than $43,500.
From a risk pool perspective, Perry County should be extremely healthy. The subsidies are rich enough that almost everyone can afford a plan even if it is a minimal Bronze plan. Roane County will see good uptake among people who earn under 150% FPL and decent uptake to 200% FPL. Above those income levels, there will be significant adverse selection as the deals just aren’t too good for healthy people, so the population will be fairly sick and expensive.
I predict that BCBS will offer two Silver plans in these new counties for 2018. I predict that there will be a significant spread between these two plans. That spread will drive a much healthier risk pool in these counties compared to what Humana covers now because marginal, low cost buyers will be more likely to get in.
Update 1 My read on the BCBS Tennessee letter: