Yesterday afternoon, I was having a beer and a long discussion on Zoom with my friend and most frequent co-author. We’re trying to figure out what our combined research agenda for the next couple of years looks like after we get through a couple of current and near future projects. We think we have some cool questions that both build on our previous work while also being intellectually interesting and extremely policy relevant.
We got cool stuff in the near and long term pipeline.
However, one of the more useful parts of the conversation was the decision to send an idea of mine that has been bugging me for 6+ years to the big farm upstate where good projects go to play with other really good projects. I want to study negative premium plans in the ACA but we can’t figure out the data or the approach. I’m throwing this out there for anyone to steal and do really cool things with as I want to read your paper in 2027 but I don’t know how the hell to write that paper.
We know that zero premium plans are pretty common in the ACA (as well as Medicare Advantage and Medicaid Managed Care). We know token positive premiums create substantial administrative burden. Every ACA paper that I write (including my dissertation) has a line that says something to the effect “premiums are minimally bounded by zero….” That is not quite right! Sometimes there are extremely lagged negative premium plans or in non-econ language — sometimes there are plans where you eventually get paid to buy them.
WHAT?
Yeah, this is weird. It is an artifact of the Medical Loss Ratio(MLR) regulations. MLR rules state that over a 3 year rolling window, an insurer has to spend 80% of qualified premiums on either medical/pharmacy claims OR qualified quality improvement projects. In reality, gross premiums are greater than qualified premiums, so the actual ratio is around 75%(ish). If an insurer over that three year window in a state-market segment has an MLR below 80%, the insurer-segment has to send out rebate checks to enrollees from the last year of the three year window.
Most of the time, MLR rebates are going to be actuarial noise as insurers aim to be just above the cut-off point and sometimes they miss high and sometimes they miss low.
HOWEVER— in 2018, the ACA market was an ungodly mess.
Lots of insurers decided to leave in 2017 for the 2018 plan year as they had no idea if the market would still exist when they had to do their rate filings in summer 2017 due to Repeal and Replace and they had no idea what was happening with Cost Sharing Reduction subsidy payments. The surviving insurers did what insurers and actuarials do when they are scared — massively jack up rates. They also put the cost of CSR payments into their Silver premiums in a move known as Silverloading.
More particularly, a few insurers, including one in Virginia, were local monopolists and realized that they could send premiums through the roof and most enrollees who got subsidies would not be effected (interesting side note — GOLD enrollees facing a massive relative price shock… find new grad student minion to pitch). By summer 2018, it was obvious that insurers were Scrooge McDucking it for 2018 as premiums skyrocketed, enrollment stayed flat-ish and claims were flat-ish.
By the start of 2019 and especially the 2020 Open Enrollment Periods, it was obvious that a couple of insurers would need to issue huge ass MLR rebate checks for their 2018 pricing. And an individual who could buy a low to no premium plan in one of these insurers was effectively buying an option that was very likely to be in the money on one of those huge ass rebate checks. The combination of normal ACA subsidies, and Silverloading would drive down their premiums at the point of purchase and the MLR rebate check would, eighteen months later, make their effective net premium negative by a whole lot. In some cases it could be a several thousand dollar check.
The companies that were very likely to be giving out honking huge rebates was pretty predictable — so did attentive enrollees buy their option?
I want to answer this question but the data has never been good enough….
So feel free to use this set-up as I want to read your paper in 2027.
Baud
Did you?
David Anderson
@Baud: I did not live in a state where such a company sold plans.
Dangerman
I’m barely functional (limited caffeine) but instead of negative premiums, there should be rewards for healthy lifestyles. I get people are punished for smoking but are people adequately rewarded for not smoking? Same with hitting the gym regularly (I’d share my heart rate data for an appropriate reward). OK, there are privacy concerns, but privacy basically went the way of the Dodo with smart phones.
Not the right thread, but heartsick over UCLA last night; the area between Powell Library and Royce Hall, with Janss Steps (used to run them; now I could walk them, at a leisurely pace) and the Fountains, is hallowed ground. Go to the IM field, MF’s. Or Drake.
Baud
@David Anderson:
That sucks, man.
Belafon
@Dangerman:
People who can’t afford a gym get hit twice.
Marcopolo
That must have been related to what I experienced. I went an entire year w/out having to pay monthly premiums because my prior year rebate/refund check was so large from the company from whom I was buying my silver ACA health insurance plan.
I remember calling them up in Jan & asking if I was actually enrolled because my monthly auto payment to them hadn’t happened. Gotta say it was pretty nice to know the whole year was covered.
And for the folks asking above, there are all kinds of carrots 🥕 my plan offers to promote a healthier lifestyle.
Ohio Mom
@Dangerman: I am always leery about punishing or rewarding people for good health habits/lack thereof, for several reasons.
Mainly because a lot of the criteria are too correlated with socioeconomic-economic class issues; you’re going to end up punishing/rewarding people for accidents of birth, which is mostly what economic standing results from.
I also think it’s very easy to game your report of what your good health habits are. Finally, so much of health is luck.
Julie
When this happened to me a couple of years ago — receiving a rebate check in excess of the premiums I had paid for a previous year — I was surprised because I assumed that rebates would be limited to premiums actually paid. I follow this stuff pretty closely and I had no idea that premiums could end up being negative.
David Anderson
@Dangerman: The evidence shows that these programs do jack shit on actually changing health outcomes — they are really good at splitting the population on private information to healthy and less healthy segments. We really want to avoid those structures within the context of a guaranteed issued environment.
Another Scott
Interesting problem.
I ass-u-me that average people looking for a new insurance policy start with what is accepted by whatever doctor’s office/medical practice they go to. That weeds out some, I expect. Then they look at costs (premiums, deductibles, cost sharing). Then they try to guestimate what seems the best deal.
I expect that most policies are very sticky – I haven’t changed my health insurance in 30-mumble years, but recognize I’m probably an outlier. Unless something unexpected happens (big spike in premiums, company dropping the holder, bad experience when trying to use what they paid for), I expect most people don’t change their plans because they don’t want to invest the time – again – to try to figure out what is better and worry about making a worse choice.
tl;dr – I would expect the universe of people actively trying to get those sweet, sweet rebate checks by knowing what to look for, and living in the right state, is very small.
But the folks with green eyeshades need to think about corner cases like this very, very carefully! Imagine if OSCAR had managed to find a corner case that directed the money to their account instead…
Thanks.
Cheers,
Scott.
JaySinWA
I would expect insurance brokers to have the kind of knowledge that would let them pitch negative premium plans to customers. Maybe some were advertising the availability?
dnfree
@Dangerman: My heart rate looks great, but it’s not because I’m an athlete, even though it’s in that range. It’s because of one of my heart medications. A look at my list of prescriptions might scare an insurer off.
BruceFromOhio
Stop, think, and plan.
I am very grateful you have the opportunity to do this, and that you share as much as you do.
David Anderson
@BruceFromOhio: I’m incredibly lucky and privileged that I get to do what I do and make a more than decent living while doing it.
Keaton Miller
I think the answer here is in embedded in your description of the situation: the plans were not negative-premium (contrast to some MA plans with Part B premium reductions), but instead had some option value.
What fraction of people invest in options? And what fraction of those are willing to make that play in their own insurance? My prior is that it’s a small number.
Given that the signal is likely small, answering the question is probably more than a data issue – I think you’d have to estimate a full panel demand system to rule out other demand stories.
All in all, sounds like a good project to shelve.
David Anderson
@Keaton Miller: Yeah, full panel demand strategies are well past my capabilities….