Two weeks from yesterday, insurers will submit their final contract letter and notify the exchanges which plans they will offer. This is the final decision point. It is when insurers must decide the following:
- Do they stay in or flee the market?
- Do they load CSR costs onto Silver plans only or to everything?
- Do they offer to sell every plan that has been approved or do they pull some plans back?
By now, most insurers have a good idea of what they want to do in two weeks. They have settled into their strategies and it will take jarring new information to change those strategies. One of the strategies that should be more common in 2018 is Silver Gapping where an insurer controls the Benchmark Silver and the least expensive Silver and decides to increase the spread in premiums between those two plans in order to make the least expensive Silver an attractive deal for subsidized buyers.
Silver gapping should increase as more counties are only covered by a single insurer. The relative spread between the Benchmark Silver and the least expensive Silver determines the size and health of the marketplace. The bigger the spread, and thus the better the deal, the more people who will sign up. We know that the marginal buyers tend to be healthier so a market with a large Silver spread will have a healthier, on average, risk pool than the same market where the least expensive Silver plan is the same price as the Benchmark Silver plan. Single carrier markets have no complex competitive dynamics like those we see in Indianapolis where the market is converged by two Medicaid like carriers offering functionally similar narrow network products at nearly the same premium. In states like Iowa where there is only a single insurer, there is not even risk adjustment concerns as there is no effective risk adjustment.
There are three major ways insurers can vary the premium of their products.
- Change provider access rules by switching from open access PPO to tight gatekeeper HMOs. The tighter the gatekeeping function, the lower the premium when all else is held equal.
- Lower benefits by upping cost sharing and dropping actuarial value. A 66% AV Silver plan costs 7% to 8% less than a 72% AV Silver plan when everything else is held equal.
- Reduce network size. A narrower network can pay providers less and exclude providers who generate large claims.
These three options can be combined. If the benchmark Silver plan is a PPO with a 71.99% AV and a national network, it will be far more expensive premium than the least expensive Silver plan that is a tight gatekeeper HMO with maximum deductible leading to a 68.01% AV and a hyper skinny network.
Those types of aggressive games are not common. Usually only one or two of the knobs will be switched. In central Tennessee in 2017, BCBS-Tennessee offered the same network for the same plan type but the benchmark Silver was a high AV plan and the least expensive Silver plan was a low AV plan. AV spread games in a world where cost sharing reduction subsidies are paid on time and with certainty are the least harmful games to low income buyers as CSR subsidies up their baseline AV to the same effective AV. These individuals would have access to a broad network. AV spreads presents the choice of higher premiums or higher out of pocket expenses to non-CSR subsidized buyers.
Network manipulations are the other common technique. A narrow network plan at the same actuarial value as a broad network plan may direct buyers with significant disease burden to buy the benchmark Silver plan in order to access the broader network of hospitals and specialists.
These are the trade-offs that insurers think about when they decide if and how they will Silver gap. Changing benefit designs is a less expensive and more straightforward way to manipulate the subsidy attachment formula. Building a credible narrow network is more expensive and time-consuming but it is a longer term asset that is not as easily beaten by new entries into the market.