Friday, December 14, 2018

Blue waivers! Synthetic silver loading, anyone?

First the bad news: Seema Verma's CMS has invited states to undermine guaranteed issue and comprehensive coverage in their ACA marketplaces, floating four "waiver concepts" that converge on one idea: subsidizing medically underwritten, lightly regulated insurance.

Now the good news: CMS has invited states to be creative. Blue states might think about taking up the offer to redesign the ACA marketplace subsidy structure. Those states, however, will want to stay within the statutory "guardrails" for ACA Section 1332 innovation waivers that recent Trump administration guidance seeks to, um, wave away: provide coverage as comprehensive and affordable to as many people as does the existing marketplace design, without increasing the federal deficit.

The financial constraint -- deliver better benefits without spending more money -- has rendered Section 1332 something of a Catch-22 for states aiming to maintain a private market in which plans offer comprehensive coverage without regard to applicants' medical history.

But Trump's October 2017 cutoff of direct  reimbursement of insurers for Cost Sharing Reduction (CSR) and the resulting "silver loading" -- pricing CSR into silver plans only, since CSR is available only with silver plans -- has created a windfall that might be leveraged if CMS plays by Section 1332 rules. (See note below if you're unfamiliar with how silver loading works.)

Silver loading has inflated subsidies as well as premiums and created discounts in bronze and gold plans benefiting some two million enrollees, boosting enrollment and partially offsetting other forms of Trump administration sabotage. CBO estimates the cost to the Treasury at $194 billion over ten years. But the benefits have been haphazard and inefficiently distributed. Via waiver, perhaps a state could make better use of its share.

The limitations of free bronze

One problem with the silver loading lode is that a bronze plan is still a bronze plan -- that is, a plan with a deductible usually north of $6,000.  A Kaiser Family Foundation report indirectly illustrates the limitations of this bounty. Kaiser estimates that about 4.2 million of the nation's uninsured have access to free bronze ($0 premium) plans, thanks mainly to silver loading.

Most -- not all -- of those for whom bronze plans are free have incomes below 200% FPL, the threshold up to which strong CSR is available (with silver plans only). Last year (when Kaiser also highlighted free bronze offerings), most enrollees with incomes up to 200% FPL (over half of marketplace enrollees are below that threshold) stuck with CSR-enhanced silver plans, with deductibles averaging $234 (for enrollees up to 150% FPL) or $817 (for enrollees in the 151-200% FPL range), as opposed to an average of $5,938 for bronze plans. (Gold plan discounts are mostly irrelevant for those up to 200% FPL, as CSR-enhanced silver has a higher actuarial value than gold up to that threshold.)

Louise Norris has cogently laid out the benefits of high-deductible bronze coverage even for low income people. In the eyes of many low income enrollees, however, a $6,000 deductible might as well be $6 million.  In 2018, the low income uninsured  mostly did not bite at free bronze. Silver selection in HealthCare.gov states was up slightly at 100-150% FPL, from 89.3% in 2017 to 89.7%, and was down modestly at 150-200% FPL, from 83.2% to 78.4%. With selection largely unaffected by silver loading, enrollment was down 7.5% in this category. And once again, the majority of marketplace enrollees -- and the majority of uninsured -- are under 201% FPL.

At incomes above 200% FPL, there was a strong movement to bronze and gold in 2018. In HealthCare.gov states, silver selection dropped from 67.6% to 53.4% among those with incomes in 201-250% FPL range, and from 52% to 33% at 300-400% FPL.  Those discounts boosted enrollment. Enrollment at incomes in the 200-400% FPL range in hc.gov states was up 1.4%.

Melt down the silver lode

How might a state alter the subsidy structure to attract more uninsured? I'm led back to an idea I first explored in 2014: attach CSR to bronze as well as to silver plans. This is probably not literally feasible, but bear with me for a few moments.

CSR raises the actuarial value of a silver plan from a baseline of 70% to 94% for incomes up to 150% FPL and 87% for incomes from 150-200% FPL (and to an almost irrelevant 73% at 200-250% FPL). Since CSR is free, that opens a huge gap between the value of silver and bronze (60% AV) plans. It's the difference between a deductible of $0-1,000 and a deductible of $6,000-7,900.

For many, bronze is no real choice, yet the silver premium is difficult -- $129 per month at 200% FPL in 2019. A proportionate choice would peg bronze AVs in the mid-80s to mid-seventies. That would give low income enrollees a genuine, proportionate choice between more- and less-expensive plans. More might take up free or low-cost bronze plans if deductibles were lower and more services were not subject to the deductible.

There's a catch: If CSR is not limited to silver plans, silver loading is impossible. Bye-bye windfall.

Synthetic silver loading

On the other hand: federal funding for innovation waiver programs is calculated on a counterfactual basis: it's based on what would have been spent if the ACA structure had been left untouched. On that basis, CMS has approved funding for eight reinsurance programs, passing through the savings resulting from reduced premiums and therefore reduced subsidies. Why not do the same with rejiggered CSR? Funding should be on the basis of where premiums would have been with CSR priced into silver plans only.  Call the pass-through synthetic silver loading.

Really, though, this thinking should break out of the CSR box. At this point, CSR is something of a fiction. Originally, it was a tacked-on benefit with a separate funding stream. Now that it's priced in to premiums, it's simply a different mandated AV, inefficiently priced uniformly into silver plans at four different AVs.

That inefficiency has boosted subsidies. Via innovation waiver counterfactual, the subsidy boost could be deployed more efficiently, with higher minimum AVs at various income levels, maybe at all levels up to 400% FPL.  My own feeling is that offering bronze plans at low income levels is a disgrace.

You'd need better math skills than mine to take a state's calculated silver loading windfall and use it to improve ACA subsidies more efficiently than do the current accidental discounts. There's also the little matter of whether the Trump administration's CMS would approve waivers that assume silver loading. But logically, they should. A state government that wants to improve access to affordable healthcare, as well as to affordable insurance, should try.

A note on silver loading

Silver loading refers to concentrating the cost of CSR subsidies (directly reimbursed to insurers by the federal government as stipulated by the ACA until Trump stopped payment in October 2017) in the premiums of silver plans, since CSR is available only with silver plans. Since premium subsidies, designed so that the enrollee pays a fixed percentage of income, are set to a silver plan benchmark (the second cheapest silver plan), inflated silver premiums create discounts for subsidized buyers in bronze and gold plans. And in states that allowed insurers to offer silver plans off-exchange with no CSR load, unsubsidized enrollees were protected from CSR costs, theoretically at least.

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