Sunday, November 01, 2015

How bronze plans offer fool's gold to the Treasury

I have more than once expressed frustration that HHS, when urging the uninsured to buy health plans in the ACA marketplace, emphasizes low premiums at the expense of good coverage. For example, CMS's snapshot of plan prices for the Open Season beginning today leads like this:
The next Open Enrollment period for the Health Insurance Marketplace begins on November 1, 2015 for coverage starting on January 1, 2016. According to an HHS analysis, about 8 out of 10 returning consumers will be able to buy a plan with premiums less than $100 dollars a month after tax credits; and about 7 out of 10 will have a plan available for less than $75 a month.
Only perhaps 5 out of ten returning customers will be able to buy a silver plan for under $100 per month, and many of those who slip beneath that round-number threshold by buying bronze plans will be forgoing the Cost Sharing Reduction (CSR) subsidies that are available only with silver plans.  Yet the messaging about CSR on and in HHS's communications is confusing and underemphasized.

Perhaps the ambivalence or inattention to CSR stems in part from a financial conflict of interest between the federal government and shoppers on the ACA exchanges.  When a CSR-eligible shopper selects a bronze plan, the Treasury saves not only on the forgone CSR subsidy, but also, in some cases, on the premium subsidy. Bronze plans are in some regions priced so low that the full unsubsidized premium is less than the premium subsidy to which the buyer is entitled, which is calculated to leave her paying a fixed percentage of income for the second-cheapest silver plan available. That's likeliest to be the case for older buyers, for whom unsubsidized premiums can be up to three times as high as for young buyers

This pricing permutation is very much in play in California in 2016. In 2015, 53.5% of California's subsidized enrollees were between the ages of 45 and 64 -- and again, for older buyers, premium subsidies often cover the whole cost of a bronze plan, and then some.
Below, I've mapped prices of cheapest bronze and the cheapest silver plans available to a 50 year-old earning $23,000 (just under 200% FPL, the cutoff for "strong" CSR) in six California regions. Of California's 19 pricing regions, these six had the highest percentage of bronze selection in 2015.  In all six, bronze plans are available for a nominal $1 per month in 2016, though the subsidy to which each buyer is entitled more than covers the unsubsidized premium. The right column shows the difference between the buyer's subsidy (should he buy the benchmark silver plan) and the full cost of the cheapest bronze plan.

California regions with highest percentage bronze selection in 2015
2016 monthly premiums and subsidies for a 50 year-old with an income of $23,000

CA region
Cheapest bronze
Cheapest silver
Full cost cheapest bronze
Treasury savings - bronze
Eastern Counties
$  1
9 Monterey Coast
$ 72
1 Northern Counties
$ 41
Santa Clara
$ 38
North Bay
$ 39
San Mateo
$ 60

Source:  Covered California "Shop & Compare"

The savings to the federal Treasury when this buyer selects bronze average out to $66 per month, or $792 per year -- leaving aside the the cost of forgone CSR subsidies. While our 50 year-old buyer in five of these six regions will likewise "save" over $1,200 in premiums by choosing the cheapest bronze plan, she'll also let herself in for a $6,000 medical deductible and $6,500 yearly out-of-pocket maximum -- as opposed to a $550 deductible and $2,250 out-of-pocket max for silver.

The price spreads between cheapest bronze and cheapest silver mapped above are wider than typical nationwide, and so the "savings" to the federal government caused by higher bronze plan selection rates would not be as dramatic as this sampling suggests. But savings there are.  In January, CBO reduced its estimate of the 10-year cost of CSR by $39 billion (23%), to $135 billion and of premium tax credits by $28 billion (3%), to $827 billion (p. 125).  I imagine that some of that premium credit reduction as well as the CSR reduction is due to higher-than-expected bronze plan selection.

In 2015, about three quarters of CSR-eligible marketplace enrollees selected silver plans and so accessed the benefit. Given the often-wide price spreads between bronze and silver and the blurry messaging about CSR on and some state exchanges, I find that takeup surprisingly high. It seems, though, that the ACA's drafters and the CBO expected almost all CSR-eligibles to buy silver.

I imagine that for government benefits administrators, there's always a certain tension between aiming to help an eligible population to maximize an available benefit, so that it will work as designed, and the imperative to control costs. HHS naturally trumpets the number of people enrolled in ACA plans and the low average prices they pay. Making sure that beneficiaries are not underinsured has a less obvious and longer-term payoff -- though not so terribly long-term, as many bronze plan buyers are likely to become disillusioned when they realize that their plans cover little until a gargantuan deductible (usually over $6,000) is reached. HHS would do well to work to minimize the "savings" gained by low CSR takeup.

No comments:

Post a Comment