Thursday, January 29, 2015

HHS expected *more* low-income ACA buyers to select silver plans

In my multi-stage exploration of the data on ACA private plan buyers' metal level selections, I have been pleasantly surprised to determine with a fair degree of confidence that about 90% of shoppers on healthcare.gov with incomes under 200% of the Federal Poverty Level selected silver plans -- and so availed themselves of the Cost Sharing Reduction (CSR) subsidies available only with silver. For all ACA buyers on all exchanges, the figure is a few percentage points lower, since many state exchanges did a much poorer job than healthcare.gov in steering CSR-eligible buyers toward silver.

While CSR is available to buyers with incomes up to 250% FPL, the rate of silver plan selection (necessary to access CSR) falls off a cliff at 201% FPL. That's wholly rational, as CSR weakens as you move up the income scale. For those with incomes between 200 and 250% FPL, CSR bumps up the actuarial value of a silver plan -- that is, the percentage of the average plan holder's yearly medical costs paid by the insurer -- just three points, from 70% to 73%.  At lower income levels CSR is much more valuable, raising AV  to 87% (for incomes at 150-200% FPL) or 94% (for incomes under 150% FPL). Accordingly, in New York (one of the few states that breaks out metal level selection by income level), 89% of buyers with incomes under 200% FPL bought silver -- but just 59% of those between 200 and 250% FPL did.

With all this in mind, I was surprised to read* in the latest CBO updated ACA cost projections that the Department of Health and Human Services and the Joint Committee on Taxation have been surprised that more buyers eligible for CSR have not selected silver plans:
Outlays for cost-sharing subsidies over the 2015–2024 period are currently projected to be $39 billion less than previously estimated, primarily because CBO and JCT now expect that more people will forgo those subsidies by choosing to enroll in a bronze plan instead of a silver plan...


The agencies had previously estimated that few people would forgo cost-sharing subsidies; however,data released since April 2014 show that 15 percent of people who chose a plan through an exchange during the open-enrollment period for 2014 and who qualified for a premium assistance tax credit chose a bronze plan.15

Those data suggest that a significant number of people are selecting plans that minimize their monthly premium payments, even if the amounts they ultimately pay for health care (including out-of-pocket payments) exceed what they would pay under silver plans. Over time, CBO and JCT expect, some enrollees will switch from bronze plans to silver plans because they incur large medical bills or become concerned (perhaps because of outreach efforts by insurers or others) about the possibility of incurring large out-of-pocket payments...CBO and JCT now estimate that, in years after 2015, 3 million people who would have been eligible for cost sharing subsidies if enrolled in a silver plan will forgo those subsidies by signing up for a bronze plan  (p. 127).
The prior expectations seem outsized. As the passage notes, only 15% of buyers on healthcare.gov who were eligible for any kind of subsidy chose bronze plans; 76% chose silver. Probably about half of them have incomes under 200% FPL, the level below which those who forgo CSR are leaving a really substantial benefit on the table (in New York, 53% of subsidized buyers were under 200% FPL). And again, about 90% of those under 200% FPL bought silver on healthcare.gov.

As Larry Levitt of the Kaiser Family Foundation notes, budget scorekeepers "tend to be cautious on costs --if you’re responsible for projecting budgetary costs, you really don’t want the surprises to go in the other direction."  In this case, conservative on costs means very optimistic on policy.

Why would a CSR-eligible ACA shopper choose a bronze plan? I can think of several reasons:

1. The premium for the cheapest silver plan can be really painfully high for a low-income person or family. While price spreads vary considerably from market to market, bronze plans are much cheaper at all but the lowest income levels. I spot-checked 10 markets around the country for a single 44 year-old earning $23,000 per year, an income level at which CSR raises a silver plan's AV to 87%. The price spread between the cheapest bronze and the cheapest silver plan ranged from a minimum of $20 per month (in Southeast Pennsylvania) to $114 (in New Haven, CT). The average spread was about $40-60 per month. Double that for two adults, and raise it further for older buyers.

2. With the exception of a handful of state exchanges, when an exchange applicant or shopper at any income level views plans and prices available to her, she will first see them ranked by premium, lowest first.  If you earn $23k and you see that a plan is available at $35 per month, as is the cheapest bronze plan for that 44 year-old in Biloxi, Mississippi, it must be quite a mental leap to think about paying for a $120-per-month silver plan, even if the deductible is $6,000 lower ($500 vs. $6500) and the out-of-pocket maximum, 4,250 lower.

3. Surveys indicate that large numbers of uninsured Americans are unfamiliar with basic insurance terms such as "deductible" or "coinsurance."  Again, my surprise is all the other way -- that most people seem to have figured out the essentials in context. Maybe that's to be expect, though. When you're looking at a plan summary that shows Premium $26/ Deductible $6,600/Out-of-pocket-maximum $6,600, you're likely to figure out what the deductible is before pulling the trigger.

Return for a moment to Biloxi, MS, and recall those stark contrasts between bronze and silver premiums on the one hand and deductibles and out-of-pocket costs on the other. Now consider that in Mississippi, only 8% of all buyers and 7% of subsidized buyers on healthcare.gov selected bronze plans. This in a state with the third lowest median household income in the nation. To me, that's kind of astonishing. But generally -- and again, rationally -- states with poor public health indicators tend to have higher silver takeup rates.

Many CSR-forgoers are not saving the Treasury much

CBO does not break down its estimate that $39 billion less will be spent on CSR over ten years than previously forecast, but I would assume that they've analyzed the expected "CSR forgoers" by income level. Thanks to two states that have broken out ACA buyers' metal level selection by income level, I would venture a forecast that about 60% of them are in the 200-250% FPL range. These folks are giving up a very modest benefit -- a bump-up of actuarial value from 70% to just 73%.

New York is exhibit A.  According to the state's June 2014 enrollment report,** there were just shy of 63,000 buyers at 200-250% FPL,and just about 37,000 of them bought silver. That leaves just under of 26,000 who bought a different metal level, forgoing CSR. Under 200% FPL, about 129,700 out of 145,160 bought silver plans, leaving about 15,500 who bought something else. The upshot: about 63% of CSR-eligible buyers who did not buy silver were in the 200-250% FPL band.

New York, I've argued in a prior post, is in many ways a decent proxy for the national market. Its median household income is close to the national median, its bronze plan takeup rate of 19% is within a point of the national rate (20%), and its rate of silver plan takeup among subsidized buyers is a couple of points lower than healthcare.gov's (74% vs. 76%). That doesn't mean that it's distribution of buyers within different income bands is also representative -- for one thing, it had a much higher percentage of platinum plan buyers than the nation as a whole (13% vs. 5%, probably reflecting relatively large numbers of affluent self-employed people).  In other states, e.g., poorer ones, higher percentages of those who are CSR-eligible may be under 200% FPL.

Last month, Access Health Connecticut provided me with some metal level selection numbers for the current open season, and those numbers open a second window on "CSR forgoers.  As of mid-December, 21,214 buyers under 200% FPL had selected plans, and 18,850 of them -- 89% -- selected silver.  Of 7,962 buyers between 200-250% FPL, 4,984 (63%) bought silver.  Of 5,342 CSR eligibles who did not buy silver, 56% (2,978) were between 200-250% FPL.

Were federal officials surprised because 10-15% of buyers under 200% FPL selected plans at metal levels other than silver?  Or because little more than half of buyers eligible for the weakest CSR level went with silver? Or again, simply exercising budgetary caution?  For me,  the surprise is all the other way -- -- that the vast majority of people for whom CSR is a major subsidy swallowed hard and took on much higher monthly payments to get the more uncertain and conditional benefit.
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*  Thanks to Jed Graham at Investor's Business Daily for calling this to my attention.

** New York's totals have to be derived somewhat indirectly. The state reported the total number of private plan buyers (370,604), the total number of subsidized buyers (273,888), and percentages of subsidized buyers at each income level. It also reported the percentage of all buyers who bought at each metal level, including the three levels of CSR (AV 94%, 87%, 73%).  The figures cited here are extrapolated from these percentages.  Here's the full calculation/estimate:
The state reported the total number of private plan buyers (370,604), the total number of subsidized buyers (273,888), and percentages of subsidized buyers at each income level. It also reported the percentage of all buyers who bought at each metal level, including the three levels of CSR (AV 94%, 87%, 73%).  Extrapolating from these percentages indicates that there were just shy of 63,000 buyers at 200-250% FPL (23% of 273,888),and just about 37,000 of them bought silver (10% of 370,604). That leaves just under of 26,000 who bought a different metal level, forgoing CR. Under 200% FPL, the same methods indicate that  129,700 out of 145,160 bought silver plans, leaving about 15,500 who bought something else. The upshot: about 63% of CSR-eligible buyers who did not buy silver.


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