Spreads and Levels

In Mayhew On Insurance by David Anderson

This is just the annual reminder of three critical points about the individual market in the ACA:

1) The ACA individual market is a county level story.
2) Subsidized buyers really care about the premium spread.
3) Non-subsidized buyers really care about the premium level.

The initial rates coming out of Philadelphia illustrate all three of these points. Pennsylvania is seeing effectively flat rates for 2019. Philadelphia is seeing a significant price decrease as a new insurer, Centene is entering the market and will deploy a very narrow and low cost network to drop rates.

The Kaiser Family Foundation has the raw data:

The benchmark Silver is moving from $636 to $484 in Philadelphia for a single forty year old non-smoker. The least expensive Silver is also a Centene product at $480. This is great news the federal government. The benchmark and thus the subsidies paid out will crash.

It is horrendous news for subsidized buyers. In 2018, Independence BCBS maintained a massive premium spread between the benchmark Silver at $636 and the least expensive Silver at $466. This means that someone who earns just under 200% FPL could get a $0 premium Silver CSR plan. A single individual earning $25,000 per year could buy a Gold plan for $41 per month or a $0 Silver plan.

In 2019, a person earning just under 200% FPL will pay $111 for the least expensive CSR Silver plan and over $160 per month for the least expensive Gold plan.

Non-subsidized buyers will see more on-Exchange options although the cheapest Silver plan will be slightly more expensive in 2019 than it was in 2018.  The cheapest Bronze plan will be available for non-subsidized buyers at a better rate.  The least expensive Bronze plan in 2019 will be more expensive net of subsidy for subsidized buyers than the more expensive cheapest Bronze plan was in 2018.

I expect significant enrollment declines in Philadelphia and the two other counties Centene has entered with an aggressive Silver Spam game.  I also predict that the average risk score in these three counties will increase.  Centene will get most of the low risk and Independence BCBS will get most of the bad risk.  Since Philadelphia is such a big part of the entire state risk pool, the local changes in composition will have significant shocks on risk adjustment for the other sixty four counties in the state.