Health Insurance Marketplace
(HIM) — the regulated market for private insurance that begins enrollment next month as part of Obamacare (more on those premiums here
). It hasn't received much attention, but the Department of Human Services
is hoping that the “auto-assignment” policy
it has designed as part of the “private option” for Medicaid expansion could have a long-term impact on the plans and prices, by helping to ensure that no one carrier dominates the market.
One of the stated goals of the “private option”
is to increase competition in the marketplace. The more competitive the marketplace is, the lower the prices will be (not to mention, the better the product). That means better deals for Arkansans shopping for insurance, as well as a lower price tag for the “private option” healthcare expansion (100 percent federally funded for the first three years, but the state would eventually start chipping in). In fact, competition was one of the factors cited by actuaries
in projecting the costs of the "private option" plan.
The “private option” adds more than 200,000 people to the marketplace. In theory, more customers will attract more carriers (you might want to take this with a grain of salt, but Insurance Commissioner Jay Bradford
said that the number of carriers participating — four — is higher than what the state would otherwise have gotten without the “private option” and those extra customers). And more carriers means the marketplace will be more competitive. Research shows
that even an incremental increase in the number of viable carriers can significantly increase competition.
As we’ve written about
, though, the state’s problem is less about the number
of carriers and more about the market domination of one carrier, Arkansas Blue Cross Blue Shield
. If one carrier is dominating the market, adding a few more won’t do much to increase competition. And there might be reason to worry that the “private option” could exacerbate the problem. The state decided against competitive bidding rules for the “private option,” at least in Year One (explained here
, and here
; DHS says they may eventually impose competitive bidding down the road). That means that those eligible will be able to choose any Silver-level plan
they want, with the government paying the full price of the premium. For all the talk of competition, the “private option” consumers won’t be price sensitive at all
. And that’s probably good news for…Arkansas Blue Cross Blue Shield! If “private option” customers aren’t paying attention to price, brand recognition will probably go a long way.
Here's where the "auto-assignment" policy comes in. If "private option" enrollees sign up but fail to pick a plan, Medicaid will pick a plan for them. These auto-assignments will happen via rules designed to target a minimum market share for each carrier in a given region. "Auto assignments make Arkansas's market very different than any other exchange," DHS spokesperson Amy Webb
said. "They are designed to enhance competition even with a relatively small number of competing insurers. The auto-assignments are at least as important as doubling the size of the exchange because they explicitly target market share for new entrants and lessor competitors."
After the jump, a closer look at how this works (and some lingering questions)...
If you've gotten this far, you probably already know, but as a reminder: the "private option" uses Medicaid funds to purchase private insurance for low-income Arkansans on the marketplace. If someone who qualifies for the "private option" starts the enrollment process but doesn't complete it by selecting which plan they want, they will be auto-assigned. No, Americans for Prosperity, this doesn't mean
that everyone is automatically enrolled or mandated to participate — it's just the mechanism to deal with a sign-up glitch. The state's goal, stated in their
Medicaid waiver application
, is to avoid auto-assignment and minimize the number of folks that begin the enrollment process but don't complete the plan-selection process. However, at least in Year One, this issue is actually likely to come up a decent amount. In this initial year, there will be two separate sign-up portals — the federal portal for people above 138 percent of the federal poverty level, and the “private option” portal for people below. Lots of people may begin the federal portal only to find out that they need to switch to the other because they’re below 138 FPL. This "disjointed consumer experience," as the waiver application puts it, will likely lead to a significant amount of auto-assignments. (DHS wouldn't predict how often auto-assignment would be necessary but said it could potentially be as high as 50 percent in the first year.)
The auto-assignment rules, explained in the waiver application
, don't just solve the sign-up glitches — they also aim to enhance competition. Medicaid will assign plans based on an attempt to give each competitor a decent foothold in the market. You can read the details below, but basically, if a given carrier is lagging behind, it may pick up additional customers via auto-assignment. Once enrolled via auto-assignment, consumers will be informed of their plan and will have 30 days to switch to another plan if they want.
DHS views this approach as part of Year One's focus on a "transition to market," with a focus directly on price competition in future years. The idea is to give new/smaller carriers a foot in the door (presumably this will have a lasting impact in years to come as many consumers will probably stick with the plan they've got). And remember, that goal is in many ways a much bigger deal than the number of carriers. While folks often talk as if the state currently has just a few carriers, that's not the case. There are lots of carriers with a tiny share of the market today
. The issue is that Arkansas Blue Cross Blue Shield controls 75 percent of the market, which dulls the competitive effect no matter how many additional firms are competing (the domination of one or two carriers is a challenge in many states
If the number of auto-assignments is significant enough, it could be a good tool to fight against market-share domination. That said, it's a long way from market competition as we would normally think of it. A Republican lawmaker I was discussing this with nearly had a heart attack when I mentioned it but...this is really a central planning trick. It's also not a tool that the state would want to use too aggressively over the long term. If carriers know they're guaranteed a baseline of the market share, they won't be motivated to compete to improve their product or lower their price.
It's also gotten some criticism from the left. Joan Alker
, Executive Director of the Center for Children and Families (CCF) at the Georgetown University Health Policy Institute (who recently did a Q&A with us
) brought up concerns for the consumer in a letter to the feds on the Arkansas plan:
[W]e are concerned that the criteria for auto-assignment do not reflect factors that are of importance to consumers but rather looks only at market share. For example, continuity of provider relationships –which are of utmost importance to health care consumers –will not be considered when auto-assignments are made. And those who are auto-assigned will have only 30 days to opt out,which is too short a period for choice.
These concerns notwithstanding, the use of auto-assignment could potentially make a big difference in creating a more competitive marketplace down the road. Trying to get real competition in the individual market has been a tough nut for states to crack. As the Washinton Post's Sarah Kliff has noted
, "One big question about Obamacare is whether exchanges change that dynamic, if the new marketplace lets one of the non-dominant plans gain a bit of stronger footing in its market share."
Will Arkansas's use of auto-assignment in the "private option" provide a solution? That's one more piece of the experiment that the state is pursuing. We'll know more in three years time, and folks both inside and outside the state will be watching closely.
For those interested in the details, here are the rules that Arkansas Medicaid will use to auto-assign:
In Plan Year 2014, Private Option auto-assignments will be distributed among issuers offering certified silver-level QHPs certified by AID with the aim of achieving a target minimum market share of Private Option enrollees for each issuer in a rating region. Specifically, the target minimum market share for an Issuer offering a high-value silver QHP in a rating region will vary based on the number of competing issuers as follows:
o Two issuers: 33% of Private Option participants in that region.
o Three issuers: 25% of Private Option participants in that region.
o Four issuers: 20% of Private Option participants in that region.
o More than four issuers: 10% of Private Option participants in that region.
AID and Arkansas Medicaid will collaborate to refine and revise the auto-assignment methodology for Plan Years 2015 and 2016, based on factors including QHP premium costs, quality and performance experience.
In the next week, we’ll get a look at the plans, including premium prices, that will be offered on the Arkansas