Silver mirrors Bronze plans

In the spring of 2017, the Center for Medicare and Medicaid Services (CMS) announced new rules that broadened the allowable de-minimis variation in actuarial value. Silver, Gold and Platinum plans were allowed to be up to four points under the nominal target instead of the previous two point cushion. They were still restricted to being two points above the target. Bronze plans were allowed to bounce from two points underneath the nominal target of 60% actuarial value. Bronze plans were allowed to go over the nominal target by five points.

The goal was to provide more flexibility and to allow for slightly less expensive off-exchange premiums and perhaps slightly lower federal subsidies if the acturial value of the second least expensive Silver plan went below the previous 68% AV floor.

I was playing around with the 2019 CMS Actuarial Value calculator to determine how much $100 changes in deductible buys in actuarial value. That is a post for a different day. While I was doing that, I noticed something very interesting in plan design.

If you take a bare bones plan with a $5,425 deductible where everything besides the required preventative care services are deductible eligible, that plan can be both a Silver plan and a Bronze plan. There is a good mechanical reason for this mirroring.

My data is here.

CMS’s actuarial value calculator draws on different cost distributions for each metal plan. The actuaries assume that individuals with identical health profiles will use more services in a higher actuarial value band than in a lower band. This is “induced demand.” The model uses a step function for induced demand as a plan at the low end of the band is assumed to have the same induced demand as a plan at the high end of a band. So when a plan is right on the edge, it can draw against two different cost profiles to produce two slightly different actuarial value calculations. And in this corner case, the same plan design can qualify as two different metals.

This is interesting. There is nothing nefarious about a weird little corner case based on a step function and two different data pulls. But it offers up interesting strategic choices to call a plan that prices the same as either a Silver plan or a Bronze plan. Let’s assume that plans price in direct relationship to the actual underlying actuarial value with a continuous induced demand function once we hold network and plan type constant for a single insurer. This plan would then price the same for a Silver or a Bronze designation.

So what would an insurer do? I’m speculating wildly now.

An individual enrolling in a Bronze plan will have, all else being equal, a lower risk adjustment value than the same individual enrolling in a Silver plan. This is an incentive for the plan to be designated as a Silver plan. In that case, it would be highly likely that the plan would be the least expensive Silver plan and attract the healthier portion of the Silver and Silver CSR risk groups. If this plan is placed in as a Bronze plan, it is likely that there is a lower actuarial value and lower premium Bronze plan offered, so it is more likely that the sickest portion of the Bronze pool.

From here, you have to question as to whether or not or the metal bands actually influence decisions. Would someone be more or less likely to buy the plan if it is designated Silver or Bronze? Do some people decide on the metal band first and then look at a plan?

That is how a lot of choice support options are set up where choices can be filtered by metal band and then examined by either premium or out of pocket expenses. If it is the least expensive Silver plan, it will default to the top of the display list, especially for low income buyers as the Cost Sharing Reduction subsidy can be used to equalize the deductibles to other plans. If it is in the Bronze category, it is probably the most expensive Bronze plan for a given network/plan type dyad so in some sort orders, it will be the lowest ranked plan shown.

I am not sure what games can be played within a world of no meaningful difference regulation and a plan that can be either Silver or Bronze. My first instinct is to offer the plan as the lowest cost Silver for the risk adjustment and potentially the Silver Gapping edge. I am still scratching my head to see if there are profitable games that can be played by offering the plan as both a Silver and a Bronze plan.

This may be purely theoretical chin stroking but the fact that this corner case exists shows a minor problem with the actuarial value calculator in the reality of greatly expanded allowable metal bands.