Last week, I highlighted two short paragraphs that have greatly shaped my thinking on the ACA markets in the past couple of years. My former employer, UPMC Health Plan, illustrates the first point very nicely in their 2021 approved ACA rate strategy.
UPMC Health Plan current service area is mostly competitive with Highmark (the local Blue) offering similiarly priced narrow networks in most of Western Pennsylvania and significant competition in central and eastern Pennsylvania. UPMC’s building strategy for their silver plans is to develop a set of common benefit structures that they then attach to unique networks/plan types. In Allegheny County (Pittsburgh), Highmark’s cheapest silver is $6 less than the UPMC controlled benchmark for a single 40 year old non-smoker. Throwing in a bunch of additional plans tightly clustered at or above benchmark does nothing to relative pricing for anything priced below the benchmark It is a no-harm, no foul except for potential consumer confusion when they get overwhelmed by choice.
However, UPMC still has a monopoly on-exchange in several counties. Mercer County is a good case example as UPMC is able to offer their Partners network (primarily built from UPMC owned hospitals and UPMC employed physicians) as a narrow network anchored as well as their broad, general PPO network. This is an opportunity to increase both average premium paid to UPMC, increase enrollment and possibly decrease churn.
UPMC Health Plan does not elect to do that. Instead, they use the same strategy in a monopoly market as they used in competitive markets. They spam the benchmark point.
The alternative scenario is a modest re-adjustment to the plans offered. Instead of offering three Partner network plans, UPMC could offer one. They would make no changes to their Premium network offerings. This strategy dramatically increases the Silverspread so that the least expensive Silver plan for a single 40 year old non-smoker making $25,000 goes from $125 per month under their current strategy to $15 per month. This is an 88% reduction in net premium for a price sensitive buyer who wants a CSR silver plan. More aggressive spread strategies are possible by offering only two silvers at the pricing extremes, or specifically design local variants to create even greater premium spreads. But the simple plan removal strategy leads to far lower relative prices for subsidized individuals at low administrative complexity.
UPMC has aggressively priced their Gold plans below Silver, so this strategy would make Gold plans zero premium for a single 40 year old earning $25,000. Bronze plans would be zero premium under this strategy up to $34,000 in earnings.
Adopting this strategy in some counties in a rating area and not others is a modestly complex plumbing task. There may be slight state wide risk adjustment changes as average premium could conceivably increase if more people buy the Silver Premium network instead of the Gold or Bronze options or the Partner Networks. Average morbidity in the counties where an aggressive exploitation of a local monopoly is likely to decrease as the incremental buyer, who is relatively healthy and is flipping a coin as to whether or not to buy any insurance or to run naked, will be seeing far lower monthly premiums. In many cases, the incremental buyer will be exposed to zero premium plans that they otherwise would not have been exposed to. Effectuation and attrition may be more stable as it is difficult to terminate members for non-payment of premiums when there is no premium to collect.
The ACA individual market is a weird beast. The price linked subsidy system makes intuitions wrong and counter-intuitive thoughts fruitful.** Insurers have been in the market long enough to learn, but even insurers with a long standing presence in the market are leaving money and enrollment on the table.
** This sentence explains my presence at Duke.