Monday, July 27, 2015

Some sidelights on Covered California's modest rate increases for 2016

Covered California, the state's ACA health insurance exchange, is boasting today with some justice that the state held 2016 rates down to an average weighted increase of 4%. Other talking points: the average (unweighted) increase of the cheapest silver plan in each region went up just 1.5%, and the average consumer can save 4.5% if she switches to the cheapest plan in the same metal tier.

That last point is somewhat...selective: the apples-to-apples question is what will happen to current holders of the cheapest plan in each metal tier if they switch to 2016's cheapest plan.  On the other hand...there are two other hands.

First, the talking point about switching to the cheapest plan in one's metal level has some extra validity in California, where benefits for all plans in each metal tier are standardized. In other words, the only substantial variable other than price is network quality. Hence, price shopping -- balancing premium versus benefits -- is likely to be less fraught and easier to get right in California than in most states.

Second, it's good news that the cheapest silver plan in each region went up an average of just 1.5%-- but the import of that factoid depends in part on a second data point. That would be the average increase for the second cheapest silver plan in each region, which is the benchmark according to which premium subsidies are set. That is, a buyer's premium is calculated to leave him paying a fixed percentage of his income for the second cheapest silver plan available to him. If the benchmark silver plan goes up more than the cheapest silver plan, that's good for the buyer: it increases the affordability of silver-level coverage.  Covered California's full rate report shows that the benchmark plans went up an average of 1.8%, very modestly (on average) increasing the spread and so the affordability of the cheapest silver plan. It also shows that the cheapest bronze plan went up an average of 3.3% -- making the cheapest silver relatively (albeit slightly) more attractive.

The affordability of silver is important for the majority of ACA private plan customers, as most of them are eligible for Cost Sharing Reduction (CSR) subsidies, available if and only if they buy silver plans. That's the case for buyers with incomes below 251% of the Federal Poverty Level (FPL) -- that is, over 80% of buyers in the 37 states using, though the percentage is probably somewhat lower in California. For many low-income buyers, silver plan premiums are a hard swallow, and cheaper bronze plans, with their sky-high deductibles, are a serious temptation. But those with incomes under 201% FPL are leaving a really valuable benefit on the table if they fail to access CSR (for those at 200-250% FPL, CSR is much weaker and so more rational to forego). When the spread between the cheapest and second-cheapest silver plan widens, that's good news for CSR eligible buyers and bad news for the federal treasury.

For a Californian earning just under 200% FPL in 2015 ($23,340 for an individual), a silver plan carries a $500 deductible -- and a standard bronze plan, $5,000. The state's standardized benefits dictate that a bronze plan holder gets 3 primary care and 3 urgent care visits for a relatively low copay before the deductible kicks in -- so bronze plans are not quite as useless to low-income buyers as they are in many locales across the U.S., where there are no benefits that kick in before the deductible except for the ACA's mandatory free preventive care. Still, the difference for a buyer under 201% FPL between bronze and silver benefits is dramatic. A bronze plan has an actuarial value of 60% -- that is, it's designed to cover 60% of the average user's yearly cost of medical care. For buyers under 151% FPL, CSR raises the AV of a silver plan to 94%;; for buyers from 150-200% FPL, to 87%.

Here is an example of how a substantial spread between cheapest and second-cheapest silver can help a buyer. Below are estimated rates for silver and bronze plans in California's Region 2, the North Bay Counties in 2016. The top chart, with only silver quotes, shows the subsidy level; the lower chart shows the unsubsidized prices for all levels:

For an individual 40 year-old earning 200% FPL, the benchmark silver plan will cost $124 dollars a month (that's the same nationwide for any single buyer with such an income); the cheapest silver will cost $99. A fairly large spread takes some of the sting out of the relatively high silver premium. The cheapest bronze plan, however -- an HSA** -- will cost just $13.

The cheapest silver plan available in any of California's 19 regions is in Region 13, the Eastern Region.  There a single 40 year-old buyer earning 200% FPL will pay just $56 for the cheapest silver plan, a Molina HMO. The cheapest bronze plan, also a Molina HMO, will cost that 40 year-old just $4 per month.

The spread between the cheapest and second-cheapest silver varies widely from region to region. In some regions, it's less than $10 for a solo buyer at 200% FPL; in Region 15, it's just $2 . When the spread is wide enough, it can render a silver plan free or close to free for a large number of people. In Region 13, a 40 year-old earning 150% FPL will pay just $1 per month for that cheapest silver plan -- and that plan will cover 94% of the average user's medical costs, better than platinum plans and almost all employer-sponsored plans.

An awful lot of buyers do earn that little. We don't know how many in California, but in the 16 states using that expanded Medicaid, about 20% of buyers had incomes below that threshold. In the 21 states using that refused the Medicaid expansion, 44% of buyers earned under 150% FPL

Californians could use some extra help buying silver

Compared to national averages, too few Californians buy silver plans and too many forego CSR. That underperformance renders one of Covered California CEO Peter Lee's boasts, in an op-ed published today, slightly ironic.

Lee fairly credits Covered California's active negotiating with insurers with holding down rates. He also suggests that California's benefit standardization leads to better choices for consumers. That makes intuitive sense to me. But the contrast he chooses is not one that necessarily redounds to California's credit:
Consider the choices available in Miami-Dade County — which, like much of the nation, has a passive insurance exchange. Consumers there face a dizzying array of choices. Just within the "silver tier" — by far the most popular category — that exchange contains 33 differently designed plans. In principle, silver products should feature moderate premiums and moderate deductibles. In Miami-Dade, however, the annual deductible ranges from $0 to an exorbitant $11,500. Monthly premiums for two 35-year-olds with two kids range from $546 to an unaffordable $1,274 — even after applying their income tax credit.

In a central Los Angeles ZIP Code, by contrast, Covered California offers only seven silver products, and subjects all of them to standardized benefits. Most of the care patients receive under these plans would not be subject to a deductible at all. And for that same family, the monthly premiums after the tax credit fall between $498 and $759.
I can't help but wonder if Lee chose to pick on Miami-Dade because it had the highest enrollment of any county in the country -- over 392,000 by the end of open enrollment season in 2015 (with some attrition thereafter). It was ground zero for the Florida enrollment surge that pushed Florida ahead of California as the state with the the most private plan enrollees. That's in large part because Florida, unlike California, has refused the ACA Medicaid expansion, thus widening the pool of people eligible to buy private plans (eligibility begins at 100% FPL in nonexpansion states vs. 138% FPL in expansion states, which provide Medicaid to people below that threshold). All that said, according to Kaiser Family Foundation estimates, Florida has enrolled 57% of its subsidy-eligible population in private plans, versus 42% for California.  Private plan enrollment surged in Florida in 2015, while it flatlined in California.

More to the point, on the crucial issue of accessing Cost Sharing Reduction, Floridians, for whatever reason, may have made better choices than Californians. Unfortunately, we don't have an income breakout for buyers in California in 2015, so we can't quite go apples-to-apples here. But in Florida, 75% of buyers who were eligible for premium subsidies also accessed CSR, versus just 58% in California.

Generally, the vast majority of buyers eligible for premium subsidies have incomes under 251% FPL and so are also eligible for CSR. In Florida, 92% of all subsidy-eligible buyers were eligible for CSR (1,366,887 out of 1,478,938).  We don't know the corresponding figure for California. It was doubtless lower -- and furthermore, a lower percentage of those eligible for CSR in California were likely to be in the lowest income tiers, where the benefit is strongest and most affordable. Still, it looks like a higher percentage of Floridians who stood to benefit from CSR accessed the benefit than was the case in California. In Miami-Dade, ground zero for the enrollment surge and for Lee's criticism, 80% of CSR-eligibles bought silver plans and accessed the benefit.Since most buyers were poor -- 76% were under 200% FPL -- the huge variation in price among available plans that Lee cites probably didn't matter much, as only a handful of plans would look affordable. In Florida as a whole, 82% of CSR-eligible buyers did so. In California, the takeup rate may well have been lower.*
* On reflection, I want to emphasize that we can't know whether California had a lower CSR takeup rate than Florida, or the average, without income data. On the plus side, the CoveredCA shoparound this year shows shoppers who report incomes below 200% FPL silver plans first, highlighting the benefit of obtaining CSR. doesn't do that, though it does provide a warning to CSR-eligible buyers who put a non-silver plan in their shopping carts that they're foregoing the benefit.

** Bronze HSAs are a separate category in California.  The deductible is $4,500 per individual, as opposed to $5,000 for a standard bronze plan, but there's a 40% copay for every adult service, with no benefits kicking in before the deductible is reached except for the ACA's mandatory free preventive services. Standard CA benefit packages are outlined here.

Updated, 10:00 p.m. ET: I've added more detail about the differing price spreads in California's regions as well as the HSA info in the last note and a few other clarifications.

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