Incremental cost to add a choice on Healthcare.gov

In yesterday’s post, Ohio Mom asked a great question:

but how much does all this re-inventing the wheel cost?

For every plan, how many staff hours to create it (which is surely a multi-step, time-consuming process) and how much goes into packaging and marketing it? Then there are the plans that got discarded mid-development, that cost money too.

The short version is it depends on the situation.

If an insurer already has a network, a license and a standardized stack of benefit designs and they just want to add a modest benefit change like adding dental and vision that they already sell for other plans for adults to a single plan in a region that they already sell in, this is pretty cheap.

It will require a new configuration which will take a few hours of staff time. It will require a distinctive actuarial review which is never cheap. It will require a distinctive line on the filing memo. But realistically, a simple add-on to a pre-existing product on an already built network in a county where the insurer has history is pretty cheap.

It is also pretty cheap to bring a product sold in County A over the county line to County B. There might be an actuarial review and the configuration changes are modest.

So some of these choices are, from an insurers point of view, pretty damn cheap.

Now if you’re an insurer that has never operated in a state and you want to enter the market, the hurdle costs are high. Building or renting a network is expensive, getting the underlying actuarial data is expensive, getting the licensure is expensive and building out the configuration for the claims system to handle the idiosyncrasies of both contracts and state requirements can be expensive. Entering a new state is an easy way to burn a million dollars without trying hard.

The first plan built is always the most expensive. The incremental costs of building another slight variation of cost-sharing and benefits on the same network and plan type will vary between states and insurers but modest changes aren’t expensive enough to stop insurers from adding one more variant. Now if the insurer wants to offer a bunch of new plans on top of a new network, that gets expensive quickly as building and then having the actuarial consultants price the new network is consumes a lot of very expensive hours but modest tweaks on a previously priced platform have modest costs.