Silver loading is just getting started

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A bit more than a year ago, I calculated that silver loading, a disruption that Trump accidentally injected into the ACA marketplace just in time for 2018 Open Enrollment, had boosted enrollment by several hundred thousand, perhaps in the 350,000-700,000 range.

Silver loading was prompted by Trump's cutoff in October 2017 of direct reimbursement to marketplace insurers for the Cost Sharing Reduction (CSR) subsidies that reduce out-of-pocket costs for low income enrollees who select silver-level plans. State regulators responded by allowing or encouraging insurers to price CSR into the premiums of silver plans only.* Since premium subsidies, designed so that the enrollee pays a fixed percentage of income, are set to a silver plan benchmark , inflated silver premiums create discounts for subsidized buyers in bronze and gold plans.

These discounts are often dramatic. As Stan Dorn notes in Health Affairs this week, "By 2019, 15 states had average gold premiums lower than average benchmark silver premiums, and in 15 other states gold premiums exceeded benchmark silver by less than 10 percent."  In 2018, zero-premium  coverage (usually but not always in bronze plans) was available to more than half of marketplace participants, thanks to silver loading.

That said, silver loading benefits are concentrated mainly among those at the upper end of ACA subsidy eligibility, i.e., those with incomes between 200% and 400% of the Federal Poverty Level (FPL). Enrollees in this income range make up about 1/3 of exchange enrollees, at least in the 39 states that use the HealthCare.gov platform. At incomes up to 200% FPL, enrollees are eligible for strong CSR, and the value of CSR usually outstrips the value of discounts in bronze and silver. Enrollees with incomes up to 200% FPL have mostly stuck with silver plans, though there's been some falloff in silver selection at 150-200% FPL.

I have therefore always been somewhat bemused by CBO's forecast that within five years, silver loading will boost enrollment by 2-3 million. By now, 47 states allow silver loading, so whence an impact so much more dramatic than at present? And why would premium increases in silver plans continue to accelerate, once silver loading was in place?

In fact CBO provided a hint but left the implications implicit:

The fast premium growth of silver plans is projected to make those plans increasingly unattractive over time to people not eligible for subsidies. By the end of the coming decade, gross premiums for gold plans are projected to be lower than gross premiums for silver plans, and the gold plans will provide more generous benefits for people not eligible for CSRs.

This is not a simple matter of reduced attractiveness of the product degrading the risk pool. An analysis by Greg Fann and Daniel Cruz of Axene Partners drives home a vital point: The more higher income enrollees drop silver, the more intense the effects of silver loading, because the percentage of silver plan enrollees with strong CSR will keep rising. Thus the silver load grows more concentrated as lower-AV silver enrollees switch out, raising average silver plan actuarial value. That should drive silver premiums higher relative to other metal levels and increase the discounts available at other metal levels.

In fact, this effect is visible to a modest degree in 2019, the second year of silver loading. Here's how silver enrollment broke down by income (and so by actuarial value) in 2018 and 2019 in HealthCare.gov states, as reflected in the state-level public use files for the ACA marketplace published by CMS (2018, 2019):

Here's the AV calculation, for those keeping score at home:

Actuarial value for silver plan enrollees -- HealthCare.gov states

2018

Actuarial value - silver	Share of silver enrollment	Weighted AV share
CSR     100% (Indian)	.005	.5
CSR       94%	.462	43.4
CSR       87%	.253	22.0
CSR       73%	.116	8.5
No CSR 70%	.163	11.4
Total	.999	85.8

2019

Actuarial value - silver	Share of  silver enrollment	Weighted AV share
CSR     100% (Indian)	.007	.7
CSR       94%	.499	46.9
CSR       87%	.258	22.4
CSR       73%	.107	7.8
No CSR 70%	.128	9.0
Total	.999	86.8

Fann and Cruz argue in detail that silver loading has far to go -- that insurers are underpricing silver plans, and that regulators should seize tools to induce them to stop. They argue that premium differences between metal levels should be proportionate to differences in actuarial value, and that insurers should not be allowed to use pricing as a form of do-it-yourself risk adjustment. That is, since a risk adjustment system compensates insurers for a sicker than average risk pool, insurers' pricing adjustments for "induced demand" -- the higher usage that they expect higher-AV coverage to stimulate -- should be kept within narrow bounds. Fann and Cruz recommend that regulators require insurers to price silver plans for an actuarial value that fully reflects silver loading, and that they mandate that insurers "limit their induced demand differences between metal levels to a maximum of 10%."

Silver loading is a volatile and cockamamie way to raise subsidies in the ACA marketplace. It creates a system in which not only are silver plans worth more than gold and/or platinum for half of enrollees -- an original quirk in the ACA's design -- but gold plans may increasingly cost less than silver while offering richer benefits for the other half.  A functioning political system would take the extra treasury dollars spent on silver loading -- estimated by CBO in 2017 at $194 billion over ten years -- and incorporate those dollars into a more rational and less volatile subsidy scheme.

That, of course, is not going to happen. Democrats are going to fight to maintain Trump's accidental gift. But they're not going to be able to exchange it for a better currency any time soon.

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* By now, most states also allow or encourage insurers to offer silver plans free of the silver load off-exchange, since CSR is only available on-exchange. CSR-free silver holds unsubsidized enrollees harmless for the cost of CSR. In theory at least, the whole cost is thus borne by the federal government in the form of higher premium subsidies.