My Musings on Silver Plan Pricing Stratergies

[Post Quartermaster]

I have been mulling this over the past few days and am interested in the thought/input of others.....bear with me here......

Here in SC we will have 4 FFE exchange carriers including the startup grant funded co-op. I do not expect the co op to have a major footprint - so for all intents and purposes we have 3 carriers - Blues, Bluechoice, & Coventry....

Currently, there is a nearly inverse relationship between premium & market share - Blue owns 60ish percent of the market - maybe more, and are generally somewhat higher than the other 2 FFE carriers in the current individual market.

In addition, SC has a $33,884 – Annual personal income per capita (2010 - ranked 45th in US) & $42,580 – Median household income (2009).

Based on relatively low household income, it seems obvious that MANY residents will fall into the under 250% FPL making them eligible for cost sharing subsidies. And unless something has changed lately, a silver plan must be purchased to take advantage of cost sharing subsidies. And of course, premium subsidies are based on the 2nd lowest cost silver plan.

Based on my back of the cocktail napkin math - it seems that whichever carrier ends up in 3rd place on silver plan premium is gonna be left out in the cold if they are more than a point or two higher on premium-

Based on kff.org numbers - for a 21 male making $24k/209 % fpl, premium is $3018 yr, with a $1432 subsidy (47% of premium).

So what happens when the 3rd place carriers rates are 9% higher? By my calculations, that is an additional $22.64/mo in unsubsidized premium.

Currently, for a 5k HDHP for a 21y/o in South Carolina, prices from these 3 carriers are: $95.41 Bcbs, $76.72 Bluechoice, $72.71 Coventry, according to Ehealth......

Anyone else see a problem here?

A couple of scenarios I keep running thru -

1. what if the 3rd place carrier has the best network? Obviously the target for 2014 enrollment is to get as much young healthy business as possible- I do not see 21 y/o people paying 20 bucks a month more for a network - at least not without some serious sales guidance.

2. What if the 3rd place plan has the highest broker comp? It seems this would be the likely adjustment by whichever carrier ends up in 3rd place once the curtain comes up with respect to rates. Could create some moral dilemmas......

Seems like there is a very good chance someone could get burned- temporary reinsurance pool or not......

 

[houcoogster]

If you price yourself too high how do you get burned?
Actually it's not a bad deal when you think about all the advertising you get by being listed in the exchange and let the others carry all the risks.

 

[Post Quartermaster]

If you price yourself too high how do you get burned?
Actually it's not a bad deal when you think about all the advertising you get by being listed in the exchange and let the others carry all the risks.

You get burned by not capturing business- especially young healthy business.

By your logic, Humana must be getting a great deal on advertising by being the highest priced carrier in SC on ehealth. Right?

In a state with an average annual income well below 400% FPL, the bulk of the market will be On Exchange business.

 

[houcoogster]

By your logic, Humana must be getting a great deal on advertising by being the highest priced carrier in SC on ehealth. Right?

That's right.
Think about it...why might they do this?

 

[RayNY]

How many 21 year olds don't have parents?

If the parents are required to have healthcare, and the child is ineligible for subsidies if eligible for coverage under parents, do you think a lot of 18-26 year olds will purchase sans-subsidy?

I recognize, whether they're individuals or part of a family, those healthy young adults will end up in carrier's blocks regardless. Being in the block is more important than what tier they're on from an actuarial standpoint.

I'm just pointing out that the issues surrounding subsidies of 18-26 year olds may be a non-issue, or at least uncommon.

I don't know much about SC rates, but I assume you're age banded because you gave an age, and I assume that issue clears itself up a bit with the higher premiums that come with family plans and older individuals.

 

[somarco]

Can't recall the carrier or state (this is all running together these days) but at least one carrier WANTS to be the highest on the exchange.

I see nothing wrong with that.

 

[Yagents]

Can't recall the carrier or state (this is all running together these days) but at least one carrier WANTS to be the highest on the exchange.

I see nothing wrong with that.

I believe you're thinking of Kaiser in CA, who was accused of being the highest priced to avoid the unhealthy business expected to be first in line. They explained it was because they are offering their full network, where others are offering 1/3 of their networks.

 

[leevena]

With all due respect, you guys are missing a very big point. For the carrier that ends up number three (and perhaps the others that are more expensive than the lowest cost plan) they are in a horrible position.

Keep in mind that good risk follows low cost and bad risk follows benefits and network. The lowest cost plan will always be a magnet for the healthier (lower risk) people. What is the incentive for someone to pick a medical plan that is more expensive with relatively the same benefits? It is usually because of the provider. And if that carrier wants to further erode it's position, it will compensate the broker more. By compensating the broker more they have created an incentive to attract more bad risk.

Just saw the Kaiser post. I don't know if KP wants to be highest or not. But keep in mind that KP is a group model plan with significant competitive advantages becasue of this close relationship. They have some ability to accept higher risk than others, but not much more.

Best case scenario in a model such as this is to be the lowest cost with a smaller network.

 

[houcoogster]

Good point Leevena,
I was referring to the the most expensive plan out of 10 or 15 with same benefits and and comparable network. A plan on the exchange "in name only".

 

[somarco]

Lee, normally I would agree, but this is different. The low income crowd will spend as little of their own money as possible which means opting for the lowest overall premium.

I am sure some folks will evaluate other aspects, but I really don't expect a bunch of Einstein's dissecting each plan, reviewing networks, Rx formulary, etc.

This is especially true after being put through the wringer on the financial application for subsidy qualification.

Carriers don't want exchange business and will do everything they can to discourage buyers. If someone does wander in to their plan they will make sure there are plenty of booby traps to discourage claim payment.