Thursday, April 12, 2018

If Seema Verma bans silver loading, how many ACA marketplace enrollees will suffer?

A few weeks ago, using ACA marketplace enrollment data available for Maryland, I calculated that about 20% of Maryland marketplace enrollees would lose valuable discounts in gold and bronze plans if federal reimbursement to insurers for Cost Sharing Reduction (CSR) subsidies were restored by Congress, after being cut off by Trump last fall.

Early this month, CMS published enrollment data for all states, with more detail (as always) for the 39 states using the federal exchange, HealthCare.gov, which account for just under three quarters of all enrollment. And while Congress balked at restoring CSR funding for 2019, CMS administrator Seema Verma is now intimating that CMS may ban "silver loading," the pricing practice that produced this year's discounts in bronze and gold plans. With the full enrollment data for HealthCare.gov, we can now calculate roughly how many people would lose access to the kind of de facto subsidy enhancements that emerged this year.

Let's first quickly review how those subsidy enhancements came about. What is "silver loading"?

With federal funding for CSR cut off in 2018, insurers had to price in the value of CSR. Most states allowed them to concentrate the cost in silver plans only, since CSR is available only with silver plans. By inflating the premiums of silver plans, silver-loading also inflates income-adjusted premium subsidies, which are set against a silver plan benchmark -- creating discounts in bronze and gold plans. For a more detailed explanation, see the note at bottom.

When silver loading is confined to plans offered on-exchange, the bronze/gold discount becomes larger still -- and off-exchange enrollees are held harmless from the priced-in cost of CSR (for which they are of course ineligible). Everyone wins, except the federal Treasury, which pays inflated premium subsidies keyed to the price of on-exchange silver plans.

When Congress was considering restoring direct federal reimbursement to insurers for CSR, progressive healthcare scholars argued against it, since many subsidized buyers would see the value of their subsidies decrease. Marketplace subsidies have long proved themselves inadequate for many, particularly those with incomes in the 200-400% FPL range, who don't qualify for strong CSR. Trump's spiteful CSR cutoff provided a backdoor subsidy boost to many in this category.

That boost was particularly pronounced in Maryland, where silver plans underwent enormous premium increases. About 30,000 subsidized Marylanders (out of 154,000 enrollees) bought heavily discounted bronze or gold plans and had incomes over 200% of the Federal Poverty Level (FPL).

So what happens if CMS bans silver loading? David Anderson thinks the agency would have a hard time forcing insurers to price in CSR in off-exchange plans, where no CSR is available. If silver loading were banned on-exchange, with no load at all attached to off-exchange, the market would bifurcate . All unsubsidized buyers would get their plans off-exchange. Subsidized enrollees would lose the discounts generated by silver loading (though as Anderson points out, bronze plans would be slightly cheaper and gold plans slightly more expensive relative to silver for subsidized buyers).

If CMS forced insurers to broad-load the cost of CSR onto off-exchange plans as well, the 6-7 million current unsubsidized enrollees in ACA-compliant plans (or their counterparts in future years) would also be harmed.

How many current enrollees would lose under broad loading?

Under Anderson's scenario (broad loading on-exchange only), my working assumption is that broadly speaking, and with various exceptions, enrollees in silver-loading states who would be hurt by a switch to broad loading are those who a) are subsidized, b) have selected bronze or gold plans, and c) have incomes over 200% FPL.

What about bronze and gold enrollees with incomes up to 200% FPL?  Most enrollees with incomes in that category who select bronze or gold plans are probably making a mistake, because they are eligible for strong CSR that in most cases outstrips the value of the premium discount in gold and bronze. For more detail, see the note below.

So, how many might be hurt by a silver loading ban? According to CMS public use files, 8,743,642 people enrolled in health plans via HealthCare.gov (74.4% of all enrollees). Approximately 1.5 million of them meet the "harmed by broad loading" category defined above: they are subsidized, selected bronze or gold plans, and have incomes over 200% FPL.

The calculation runs like this. According to the Public Use Files (Sheet 9), 74% of bronze and (coincidentally) 74% of gold plan enrollees via HealthCare.gov received tax credits. That comes to 1,815,000 bronze and 391,000 gold enrollees, or 2,206,000 altogether.  Of those, 712,000 (638,000 bronze and 74,000 gold) have incomes between 100% and 20% FPL (Sheet 11). Approximately 90,000 more have incomes under 100% FPL.*  That comes to 1,404,000 subsidized enrollees in bronze and gold plans with incomes over 200% FPL, or 16% of all HealthCare.gov enrollees and 20% of subsidized enrollees.**

A small number of these bronze and gold enrollees are in states that did not allow silver loading. If the practice is not banned, however, all states will probably allow, encourage or mandate it.  So I think it's fair to include these enrollees in the "potentially harmed" total. In fact the total would be somewhat higher if all states had silver loaded.

In the state-based marketplaces, I know that California, Maryland and Rhode Island had strong effects from silver loading, e.g. steep bronze discounts. In New York, the effect was negligible, since everyone eligible for strong CSR in New York is in the state's Medicaid-like Basic Health Program, the Essential Plan. Colorado did not silver load. The issue was also moot in D.C., where Medicaid eligibility extends to 215% FPL. All of the other state-based exchanges except Massachusetts and Vermont, which offer their own supplemental subsidies, silver-loaded on-exchange only.

If the proportion of enrollees benefiting from silver loading is roughly the same in the SBMs as on HealthCare.gov, that would suggest about 1.9 million nationally (16% of 11,750,000) who stand to lose if silver loading stops.

If Anderson's scenario plays out and broad loading is confined to on-exchange plans, unsubsidized enrollees will likely all move off exchange (and be held harmless by CSR price-in). Unsubsidized enrollees currently represent about 40% of the ACA-compliant individual market. Thus about 12% of the total market would likely be harmed by on-exchange broad loading. If all off-exchange ACA-compliant plans must bear part of the cost of CSR as well, the "harmed" percentage rises to 52%.

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* Update, 5/5: 90,000 under 100% FPL in bronze and gold plans added, and totals adjusted accordingly (1.4 million over 200% FPL in gold and bronze vs. 1.5 million).

** An alternative means of determining the number of subsidized bronze and gold enrollees with incomes over 200% FPL (which is not reported directly) yields a similar result. On HealthCare.gov in 2018, 7,463,080 enrollees received premium tax credits. From that total, subtract the 4758,871 who obtained CSR, which means they enrolled in silver plans. Then subtract another 512,000 who selected silver plans and received premium tax credits but no CSR (derived from Sheet 9, which shows that 9% of silver enrollees were in that category). Then Subtract the 712,000 bronze and gold enrollees with incomes from 100-200% FPL, and another 90,000 below 100%FPL . That comes once again to 1.4 million subsidized over 200% FPL in gold and bronze.

Note on Effects of CSR funding cut-off 

To review briefly: when Trump cut off federal reimbursement of insurers for the Cost Sharing Reduction subsidies they're legally required to provide to lower income ACA marketplace enrollees who select silver plans (57% of marketplace enrollees in 2017), most states allowed or required insurers to concentrate the cost of CSR in premiums for silver plans only. States in which 70% of individual market enrollees live concentrated the cost of CSR in on-exchange silver plans only, allowing for cheaper silver plans to be sold off exchange.

Since ACA premium subsidies are keyed to the price of the benchmark (second cheapest) silver plan in each rating area, subsidies rose to cover inflated silver premiums, generating often dramatic discounts in non-silver plans, i.e. gold and bronze (platinum availability and purchase is negligible). In many states, steep increases in silver plan premiums resulted in zero-premium bronze plans becoming available to many buyers (or nominal $1-3/month premiums), and gold plans that were either cheaper than silver or close in price.

Cheap gold plans were a particular boon to enrollees with incomes between 200% and 400% of the Federal Poverty Level (FPL). These buyers are not eligible for strong CSR, which makes silver plans roughly equivalent to platinum plans for buyers up to the 200% FPL threshold. Normally,  enrollees in the 200-400% FPL range would pay between 6% and 10% of their income (percentage rising with income) for a benchmark silver plan with an actuarial value of 70%, i.e. with an average deductible of around $3600). With CSR priced into silver plans in 2018, gold plans  (80% AV, with an average deductible of around $1100) came within reach of many in this income range.  Gold plan selection quadrupled in Maryland in 2018.

Note on CSR for enrollees up to 200% FPL

For enrollees under 201% FPL, silver plans have an actuarial value of 94% (up to 150% FPL) or 87% (150-200% FPL), but they're priced as if the AV were 70% (as it is for silver plan enrollees who don't qualify for CSR). Bronze plans have AV 60%, and gold plans, 80%. A person with an income under 150% FPL typically has a choice between a bronze plan with a deductible north of $6,000 and a silver plan with a deductible averaging $255 as of 2017. For those with incomes in the 150-200% FPL range, the average silver plan deductible in 2018 was about $800.

Premium subsidies are structured so that an enrollee with an income below 138% FPL will pay 2% of income for a benchmark silver plan. HealthCare.gov enrollment includes almost 2 million people in this category, concentrated in states that refused to expand Medicaid, where eligibility for marketplace subsidies begins at 100% FPL rather than the 138% FPL threshold that obtains in expansion states. At 138-150% FPL, benchmark silver costs 3-4% of income; at 150-200% FPL, 4-6.3%. CSR takeup drops steadily as income rises; it's near 90% at incomes up to 150% FPL.

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