At the Health Affairs Blog, Coleman Drake, Petra Rasmussen and I lay out some of our concerns about the ACA choice environment in the first of a two part blog post series.
The passage of the American Rescue Plan had two major changes to the ACA’s subsidy scheme. First, people who earned over 400% FPL were eligible for subsidies if the benchmark silver plan was more than 8.5% of their income.
Secondly, and more importantly, the expected household contribution for lower income buyers who were already subsidy eligible decreased dramatically. Notably, individuals who earned under 150% FPL saw the benchmark premium go from about 4% of income to 0% of income. A massive number of people are now seeing zero premium CSR-94 Silver plans.
Coleman and I have published on the importance of automatic re-enrollment. Automatic re-enrollment significantly reduces administrative friction and boosts enrollment. However, the current system of automatic re-enrollment prioritizes minimal movement of individuals. Individuals are defaulted to the same plan next year. This is operationally straightforward but it has always led to situations where bad choice is entrenched. Petra and I will soon be publishing on dominated plan choices after Silverloading where we found that people who were not paying active attention and elected to automatically renew their plans got kicked in the counterfactual junk.
When we saw the new subsidy system, we immediately thought that the current automatic re-enrollment system will place a lot of people into strictly dominated plans. We define strictly dominated as a plan of a higher actuarial value from the same insurer on the same network and plan type for the same or lower monthly premium. Dominated choices are bad. They never are on the trade-off curve. Dominated choices lead to some combination of people spending more money in premiums and receiving less risk protection or both. Insurers like dominated choices as it increases either their revenue or decreases their claims exposure. Insurers don’t have a strong business case to help individuals avoid dominated choices.
However, there is a possible solution.
The automatic re-enrollment process can be altered so that the default is smarter. The first step in the placement of individuals into a default plan for the upcoming year would be to place them into the highest actuarial value plan from the same insurer/network/plan type that their current net premium buys. After that, the current schema could be displaced one step in priority.
Choosing insurance is hard no matter. It is especially hard in the ACA environment as the premiums that consumers pay are likely to change due to factors outside of their control — new insurers can enter markets and change the benchmark and massive policy shocks will also frequently occur. Exchange boards can bear the burden of complexity by leveraging their expertise to find systems that default to not-bad instead of objectively bad.
dnfree
Your proposal sounds like an excellent idea. Furthermore, it sounds like something that could be implemented reasonably. In my former life as systems analyst and programmer, I found that some ideas sounded straightforward, as in “Why not just do this?”, but in fact “this” was devilishly complicated or required information not available. Your plan sounds doable, at least to me.