The problem with silver loading in New Jersey

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New Jersey's ACA marketplace disappointed in 2019. Prior to open enrollment, the state passed an individual mandate to replace the zeroed-out federal mandate and also stood up a reinsurance program. Together, these measures dropped premiums 22% below where they would otherwise have  and 9% net compared to 2018. Governor Murphy also directed all state agencies to encourage enrollment outreach and devoted a small sum of state funds to partly offset massive federal cuts to advertising and enrollment assistance.  

Nonetheless enrollment dropped 7% from 2018 levels -- higher than the overall 4% drop in the 39  states using the federal exchange, HealthCare.gov, though right at the median for states on the platform that had expanded Medicaid.

Silver loading* effects were likely a key factor in a wide performance gap between expansion and nonexpansion states on HealthCare.gov in 2019. In states on the platform that have not expanded Medicaid, 2019 enrollment was 99% of the 2018 total and 95% of 2017. In expansion states, enrollment in 2019 was 93% of 2018 and 87% of 2017. Why do nonexpansion states have a silver loading advantage? As I outlined in January (with a hat tip to Dave Anderson):

In states that have refused to expand Medicaid, silver loads are larger, because eligibility for marketplace subsidies begins at an income of 100% of the Federal Poverty Level (FPL), as opposed to 139% FPL in expansion states. More than one third of enrollees in nonexpansion states have incomes below 139%, which qualifies them the for highest level of CSR [94% AV]  -- and close to 90% in this income range select silver plans. Hence the estimated cost of CSR, priced into silver plans, should be higher, rendering bronze and gold plans relatively cheaper.

In New Jersey, the silver loading gap is particularly acute; the practice has yielded essentially no discounts at all for subsidized buyers, though in 2019 it did generate discounted off-exchange silver for unsubsidized enrollees.

New Jerseyans are essentially priced out of gold plans -- just 1.8% of on-exchange enrollees chose gold in 2019, compared to 7.5% in HealthCare.gov states collectively. The state has the worst gold/silver premium ratio in the country, according to an analysis by actuaries Greg Fann and Daniel Cruz: the cheapest gold plan averages 181% of the cheapest silver statewide. Nor has silver loading yielded bronze discounts; for subsidized buyers, bronze premiums in NJ are the second highest in the country, according to Fann and Cruz.

Fann and Cruz argue forcefully that silver loading has not gone far enough quickly enough: gold premiums, they assert, should be lower than silver premiums, as the average actuarial value of silver plans (weighted by enrollees' CSR levels) is well above gold's 80% AV. As I noted earlier this week, the collective AV of silver plans for HealthCare.gov enrollees in 2019 was 86.8%, up about a percentage point from 2018.  Fann and Cruz recommend that insurance regulators require insurers to price their different metal level plans proportionately to actuarial value , with only limited adjustment for their estimates of "induced demand," the higher usage prompted by lower out-of-pocket costs (which should also apply to silver plans when most silver plan enrollees access 94% or 87% AV). In  most cases, state regulation should induce insurers to price gold below silver on-exchange, where a growing percentage of silver plan enrollees are obtaining AVs of 94% or 87%.

New Jersey, however, has further to go in this respect than most states, for several reasons:

1. The state has expanded Medicaid, removing the bulk of the 94% AV cohort that juices silver loading in nonexpansion states.
2. The state is relatively wealthy, further reducing the 94% AV cohort relative to many states
3. The state allows less variation in AV within metal levels than does CMS, reducing insurers' opportunities to create cheap bronze and gold plans.
4. The state's mandate + reinsurance combo reduced 2019 premiums for the subsidized (perhaps boosting off-exchange enrollment, which remains to be seen), but further compressed spreads and therefore discounts for the subsidized.

The result: A much lower average AV for silver in New Jersey than the HealthCare.gov average. AV for all silver plans taken together is almost exactly the same as for gold, rather than well above:

New Jersey 2019

Actuarial value - silver	Share of  silver enrollment	Weighted AV share
CSR     100% (Indian)	.0003	.03
CSR       94%	.208	19.6
CSR       87%	.276	24.0
CSR       73%	.154	11.2
No CSR 70%	.362	25.3
Total	1.00	80.1

HealthCare.gov states, 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

In New Jersey, moreover, average silver AV did not increase in 2019, whereas in all HealthCare.gov states it rose a full percentage point over the 2018 total.

New Jersey, then, needs decisive regulatory action to get the silver loading ball rolling -- a loosening of AV ranges in each metal level as well as a requirement to price in accordance with real AV.

P.S.  The expansion/nonexpansion state performance gap on HealthCare.gov shouldn't be addressed without a reminder that silver loading isn't everything:

It should be noted, too, that the superior enrollment performance in states that operate their own marketplaces is all the more impressive in light of the fact that 11 out of 12 of those states have expanded Medicaid. Given the apparent silver loading advantage in nonexpansion states, that performance pretty clearly indicates that a state commitment to marketing and outreach -- radically cut in HealthCare.gov states, funded by exchange fees in states that operate their own -- has a significant impact.

Related:
Silver is platinum. Insurers should price it as such. Regulators should make them.
Silver loading is just getting started

Update, 6/20: Silver loading did generate discounts in off-exchange silver plans in New Jersey in 2019. This week we learned that off-exchange enrollment was up 3% in 2019. The discounts created by the state's reinsurance program and individual mandate probably paid off here, with an assist from discounted off-exchange silver. More here.
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* Silver loading is the byproduct of Trump's October 2017 cutoff of direct federal reimbursement to insurers for the Cost Sharing Reduction (CSR) subsidies they are required to provide to low income marketplace enrollees who select silver plans. Faced with the cutoff at the brink of open enrollment for 2018, most state insurance departments allowed or encouraged insurers to price CSR into silver premiums only. 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. The effect is further concentrated when insurers offer off-exchange silver plans with no silver load. In 2019, more states green-lighted silver loading -- 45 at last count -- and more switched to on-exchange-only silver loading.