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Washington state legislators made ACA history last month by passing the first state-based "public option," to be sold in the state ACA marketplace. An unkind reaction reaction, partly prompted by the main actors' own assessments, would be that the creators labored mightily to produce a mouse.
In an early version, the bill to create the public option stipulated that the program would pay healthcare providers at Medicare rates. As the bill neared passage, the payment rate jumped to 150% Medicare -- and then, at passage, to 160%. David Frockt, the bill's sponsor in the state Senate, claimed that providers would not participate at lower rates, particularly in rural areas, where the state has had a hard time attracting insurers into the exchange.* Frockt later told Sarah Kliff that the bill would not have passed without the rate bump.
State officials estimate that the plan will reduce individual market premiums by a modest 5-10%. That's a boon to unsubsidized enrollees -- with no guarantee of any pricing benefit to subsidized enrollees, who pay a fixed percentage of income for the benchmark (second cheapest) silver plan in their area. In fact, lower base premiums sometimes reduce affordable options for subsidized enrollees as lower premiums tend to reduce price spreads between the benchmark, which determines subsidy size, and cheaper plans.
Perhaps the public option's chief benefit is the guarantee that at least one insurer, paying not-exorbitant rates to providers, will operate in rural areas ( though the bill also empowers the state exchange to pay higher rates in areas where they can't attract sufficient providers). That's not nothing, but it's not exactly a game changer [though per update at bottom, 14 of 39 counties in 2019 had just one insurer, and some have no bronze plans]. The state exchange also will design the plans with an eye to reducing deductibles and offer some services not subject to the deductible, presumably favoring those that meet a stated goal of encouraging "choice based on value." A plan designed with the intent to maximize benefit to enrollees is good -- but there's just so many ways to slice the actuarial value mandated for each metal level by the ACA. And the state will not administer the plans -- it will engage private insurers to do so.
Some regulatory alchemy is needed
There is a way, however, that the plan's administrators (which include the state exchange, the insurance commissioner, and the state Health Care Authority), could increase the value of the public option to enrollees at the upper income levels of subsidy eligibility. They could require that gold plans be priced more cheaply than silver plans. They should be, because Washington's silver plan enrollees, taken together, obtain a slightly higher actuarial value than do gold plan enrollees -- and that value difference will expand if the plans are priced appropriately. (Actuarial value is the percentage of the average enrollee's costs a plan is designed to cover, computed according to a federally mandated formula.)
Silver has a higher average AV than gold because of the Cost Sharing Reduction (CSR) subsidies that attach to silver plans for enrollees with incomes up to 250% of the Federal Poverty Level (FPL). CSR raises the actuarial value of a silver plan to 94% at incomes up to 150% FPL, 87% at 151-200% FPL, and 73% at 201-250% FPL.
Without CSR, a silver plan has an AV of 70%, while gold is 80% AV**. Through 2017, ACA plans were priced accordingly, because the federal government reimbursed insurers directly for costs generated by CSR. Trump, however, cut off those payments in October 2017, and regulators allowed insurers to price CSR into plan premiums. In all but three states, insurers are allowed (and in most states required) to price CSR into silver plans only, since CSR is available only with silver plans.
Since ACA income-based premium subsidies are set against a silver benchmark, this "silver loading" has created discounts in bronze and gold plans. As Stan Dorn of Families USA noted recently in Health Affairs, "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 addition, Dorn notes, more than half of enrollees in 2018 had access to a zero-premium plan (usually but not always bronze).
But those discounts have appeared haphazardly and have proved volatile -- some on offer in 2018 disappeared in 2019. A state-run plan, designed to maximize benefit for enrollees, could end that volatility and maximize the silver loading benefit -- or, in the case of Washington, create discounts where none currently exist.
As of February 2019, the breakdown of silver plan enrollment by income level -- and so, of actuarial value obtained with silver plans, which varies by income, is as follows:
Fracking the silver lode
As actuaries Greg Fann and Daniel Cruz have shown, silver loading has the potential to create bigger and more stable discounts than it does at present. Insurers generally are pricing gold plans higher than the plans' actuarial value warrants, because they attribute to gold plans a high level of "induced demand" -- that is, higher usage of medical services "induced" by lower out-of-pocket costs. Fann and Cruz propose that since a risk adjustment system compensates insurers for a sicker than average risk pool, price hikes for induced demand should be kept within narrow bounds. In fact induced estimates should be higher for silver plans than for gold, since, thanks to CSR, silver plans have higher average AV than gold plans in most states. (Prior to 2018, induced demand was not a factor in CSR silver pricing, since insurers were reimbursed directly for costs covered by CSR.)****
Fann and Cruz recommend that regulators require insurers to price plans at different metal levels proportionately to their real actuarial value (e.g., almost always above 80% for silver), and that they mandate that insurers "limit their induced demand differences between metal levels to a maximum of 10%." More radically, they further recommend that regulators require insurers to assume that all silver enrollees are at 94% and 87% CSR levels, since that, logically, should be the case -- and would be, were plans priced according to that assumption. When gold plans are cheaper than silver, no one should buy silver at 73% or 70% AV, i.e., at incomes over 200% FPL.
Were Washington state regulators to adopt these measures, gold plan premiums would fall dramatically while silver premiums would rise -- also pushing down the price of bronze plans for subsidized enrollees.
Room for improvement
At present, Washington enrollees are not seeing much benefit from silver loading (if any). For a 40 year-old with an annual income of $30,000 -- just under the threshold for the weakest CSR level, 73% AV -- the cheapest silver plan has a premium of about $195 per month, varying only slightly in different counties (that's a modest discount from the benchmark silver plan, which is $207 per month at this income). The cheapest gold plan ranges from $258-265 per month, except in 3 southern counties accounting for 14% of state enrollment, where it's $173/month. The cheapest bronze plan ranges from $169-$189 --barely cheaper than silver -- except, again in the "discount" counties, where it's $63 per month. (See the Kaiser Family Foundation's national premium chart by county, 2018-2019.)
In much of the state, the cut-rate insurer Ambetter (Centene) offers the cheapest plan at the silver and gold levels. In Seattle and Olympia, Ambetter's cheapest silver plan is $195/month and has a deductible of $5,325, though doctor visits and generic drugs are not subject to it. The cheapest gold, also Ambetter, is $263/month in both cities and has a $1,000 deductible. The cheapest bronze plan is a Kaiser Permanente HSA at $146 per month
The gold-silver benefit gap is more stark at an income of $35,000 where no CSR attaches to silver Only silver plan benefits change with income, because of CSR. In Olympia and Seattle, the cheapest silver plan deductible jumps to $7,050, as does the out-of-pocket max, up from $5,100 at $30,000 income. The premiums at $35k are $266/month for silver and $334/month for gold. The Kaiser bronze plan is $217/month.
For enrollees with incomes over 200% FPL, the Washington market would be dramatically more attractive if gold plans were available at roughly the same price as silver, and if bronze plans were available at a steeper discount, as it is in many states. The advantage would be compounded if that pricing structure attached to a public option, with a robust network and a benefit structure designed to maximize value for the enrollee within the ACA's metal level constraints.
POSTSCRIPT, 7/2/19: What's true in Washington is also true for any future state-based public options. The prospects of a state public option -- including a Medicaid buy-in -- have always been bedeviled by the subsidized pricing paradox: reducing premiums overall, and in particular benchmark plan premiums, tends to increase premiums for subsidized buyers by reducing the spread between the benchmark and cheaper plans. A public option that prices gold below silver solves that problem, providing a kind of back-door CSR to all enrollees with incomes over 200% FPL -- boosting the actuarial value available at a price below the benchmark from 70% or 73% to 80%. Viewed another way, a gold-cheaper-than-silver public option raises the effective benchmark AV to 80% for enrollees over 200% FPL.
P.P.S. 7/4: It occurs to me that the gold public option plan, cheaper than the silver public option, won't necessarily be below the benchmark silver plan -- e.g., in Washington, where Centene, an insurer that's primarily a Medicaid MCO, probably pays providers less than the PO's 160% Medicare. But it should be close, and perhaps would drive commercial insurers to follow suit -- if state regulators don't effectively compel them, as Fann and Cruz recommend.
Update, 7/8: Some counties in Washington have no bronze plans. The scarcity of providers/plans in many areas of the state is a major motive for implementing the public option. Fourteen out of 39 counties have just one insurer, though those mostly rural counties account for just 9% of enrollees. The eight counties with the most enrollees, accounting for 81% of total enrollment, all have three or four insurers.
Related: Silver loading and 2019 enrollment: a compendium
---
* Lawmakers could have coerced or required participation -- by stipulating that those who accepted public employees' insurance had to accept the public plan in the exchange, or even by making acceptance a condition for licensing in the state. But hospitals and doctors are a hard lobby to cross, and Washington Democrats were not willing to go that far.
** Mandated AVs allow some wiggle room, enlarged by CMS in the Trump era. Allowed variation at each metal level is -4/+2 percentage points from the target level; certain bronze plans can go to +5 (65% AV, close to the allowed 66% minimum for silver. Insurers can manipulate these spreads to create greater or smaller price variation between metal levels. Allowed variation at CSR levels is just +1/-1.
*** Average silver AV in Washington, as in most states with their own marketplaces, is lower than the national average, because 11 of 12 state-based marketplaces are in states that have accepted the ACA Medicaid expansion. In nonexpansion states, eligibility for marketplace subsidies starts at 100% FPL, in contrast to the 139% FPL threshold in expansion states (below which applicants are eligible for Medicaid). Nonexpansion states thus have a very high concentration of silver enrollees who obtain the highest CSR level, AV 94%. Nationally, average AV among exchange enrollees is 87%.
**** Imputing high induced demand to gold plans may be in part a self-fulfilling prophecy, as more attractively priced gold will draw more healthy enrollees, who presumably are less susceptible to induced demand. While plans are not allowed to consider enrollees' health status when calculating induced demand (since risk adjustment is there to compensate for poor health status), the two factors may be hard to separate.
Washington state legislators made ACA history last month by passing the first state-based "public option," to be sold in the state ACA marketplace. An unkind reaction reaction, partly prompted by the main actors' own assessments, would be that the creators labored mightily to produce a mouse.
In an early version, the bill to create the public option stipulated that the program would pay healthcare providers at Medicare rates. As the bill neared passage, the payment rate jumped to 150% Medicare -- and then, at passage, to 160%. David Frockt, the bill's sponsor in the state Senate, claimed that providers would not participate at lower rates, particularly in rural areas, where the state has had a hard time attracting insurers into the exchange.* Frockt later told Sarah Kliff that the bill would not have passed without the rate bump.
State officials estimate that the plan will reduce individual market premiums by a modest 5-10%. That's a boon to unsubsidized enrollees -- with no guarantee of any pricing benefit to subsidized enrollees, who pay a fixed percentage of income for the benchmark (second cheapest) silver plan in their area. In fact, lower base premiums sometimes reduce affordable options for subsidized enrollees as lower premiums tend to reduce price spreads between the benchmark, which determines subsidy size, and cheaper plans.
Perhaps the public option's chief benefit is the guarantee that at least one insurer, paying not-exorbitant rates to providers, will operate in rural areas ( though the bill also empowers the state exchange to pay higher rates in areas where they can't attract sufficient providers). That's not nothing, but it's not exactly a game changer [though per update at bottom, 14 of 39 counties in 2019 had just one insurer, and some have no bronze plans]. The state exchange also will design the plans with an eye to reducing deductibles and offer some services not subject to the deductible, presumably favoring those that meet a stated goal of encouraging "choice based on value." A plan designed with the intent to maximize benefit to enrollees is good -- but there's just so many ways to slice the actuarial value mandated for each metal level by the ACA. And the state will not administer the plans -- it will engage private insurers to do so.
Some regulatory alchemy is needed
There is a way, however, that the plan's administrators (which include the state exchange, the insurance commissioner, and the state Health Care Authority), could increase the value of the public option to enrollees at the upper income levels of subsidy eligibility. They could require that gold plans be priced more cheaply than silver plans. They should be, because Washington's silver plan enrollees, taken together, obtain a slightly higher actuarial value than do gold plan enrollees -- and that value difference will expand if the plans are priced appropriately. (Actuarial value is the percentage of the average enrollee's costs a plan is designed to cover, computed according to a federally mandated formula.)
Silver has a higher average AV than gold because of the Cost Sharing Reduction (CSR) subsidies that attach to silver plans for enrollees with incomes up to 250% of the Federal Poverty Level (FPL). CSR raises the actuarial value of a silver plan to 94% at incomes up to 150% FPL, 87% at 151-200% FPL, and 73% at 201-250% FPL.
Without CSR, a silver plan has an AV of 70%, while gold is 80% AV**. Through 2017, ACA plans were priced accordingly, because the federal government reimbursed insurers directly for costs generated by CSR. Trump, however, cut off those payments in October 2017, and regulators allowed insurers to price CSR into plan premiums. In all but three states, insurers are allowed (and in most states required) to price CSR into silver plans only, since CSR is available only with silver plans.
Since ACA income-based premium subsidies are set against a silver benchmark, this "silver loading" has created discounts in bronze and gold plans. As Stan Dorn of Families USA noted recently in Health Affairs, "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 addition, Dorn notes, more than half of enrollees in 2018 had access to a zero-premium plan (usually but not always bronze).
But those discounts have appeared haphazardly and have proved volatile -- some on offer in 2018 disappeared in 2019. A state-run plan, designed to maximize benefit for enrollees, could end that volatility and maximize the silver loading benefit -- or, in the case of Washington, create discounts where none currently exist.
As of February 2019, the breakdown of silver plan enrollment by income level -- and so, of actuarial value obtained with silver plans, which varies by income, is as follows:
Silver plan AV - Washington
Source: Washington State Health Benefit Exchange 2019 enrollment report. For 94% AV, the totals for 0-138% FPL and 139-150% FPL are combined
Income Silver AV
|
Share of silver
enrollment
|
Weighted AV share
|
0-150% FPL 94%
|
.223
|
20.962
|
151-200% FPL 87%
|
.313
|
27.231
|
201-250% FPL 73%
|
.142
|
10.366
|
> 251%/ unreported 70%
|
.321
|
22.470
|
Total - blended silver AV
|
.999
|
81.029
|
That 81% average AV*** may be slightly inflated, as perhaps 2-3% of enrollees at low incomes don't qualify for subsidies (e.g., because their employers offer insurance deemed affordable) and so don't get CSR. In any case, gold plan AV is 80%.
Fracking the silver lode
As actuaries Greg Fann and Daniel Cruz have shown, silver loading has the potential to create bigger and more stable discounts than it does at present. Insurers generally are pricing gold plans higher than the plans' actuarial value warrants, because they attribute to gold plans a high level of "induced demand" -- that is, higher usage of medical services "induced" by lower out-of-pocket costs. Fann and Cruz propose that since a risk adjustment system compensates insurers for a sicker than average risk pool, price hikes for induced demand should be kept within narrow bounds. In fact induced estimates should be higher for silver plans than for gold, since, thanks to CSR, silver plans have higher average AV than gold plans in most states. (Prior to 2018, induced demand was not a factor in CSR silver pricing, since insurers were reimbursed directly for costs covered by CSR.)****
Fann and Cruz recommend that regulators require insurers to price plans at different metal levels proportionately to their real actuarial value (e.g., almost always above 80% for silver), and that they mandate that insurers "limit their induced demand differences between metal levels to a maximum of 10%." More radically, they further recommend that regulators require insurers to assume that all silver enrollees are at 94% and 87% CSR levels, since that, logically, should be the case -- and would be, were plans priced according to that assumption. When gold plans are cheaper than silver, no one should buy silver at 73% or 70% AV, i.e., at incomes over 200% FPL.
Were Washington state regulators to adopt these measures, gold plan premiums would fall dramatically while silver premiums would rise -- also pushing down the price of bronze plans for subsidized enrollees.
Room for improvement
At present, Washington enrollees are not seeing much benefit from silver loading (if any). For a 40 year-old with an annual income of $30,000 -- just under the threshold for the weakest CSR level, 73% AV -- the cheapest silver plan has a premium of about $195 per month, varying only slightly in different counties (that's a modest discount from the benchmark silver plan, which is $207 per month at this income). The cheapest gold plan ranges from $258-265 per month, except in 3 southern counties accounting for 14% of state enrollment, where it's $173/month. The cheapest bronze plan ranges from $169-$189 --barely cheaper than silver -- except, again in the "discount" counties, where it's $63 per month. (See the Kaiser Family Foundation's national premium chart by county, 2018-2019.)
In much of the state, the cut-rate insurer Ambetter (Centene) offers the cheapest plan at the silver and gold levels. In Seattle and Olympia, Ambetter's cheapest silver plan is $195/month and has a deductible of $5,325, though doctor visits and generic drugs are not subject to it. The cheapest gold, also Ambetter, is $263/month in both cities and has a $1,000 deductible. The cheapest bronze plan is a Kaiser Permanente HSA at $146 per month
The gold-silver benefit gap is more stark at an income of $35,000 where no CSR attaches to silver Only silver plan benefits change with income, because of CSR. In Olympia and Seattle, the cheapest silver plan deductible jumps to $7,050, as does the out-of-pocket max, up from $5,100 at $30,000 income. The premiums at $35k are $266/month for silver and $334/month for gold. The Kaiser bronze plan is $217/month.
For enrollees with incomes over 200% FPL, the Washington market would be dramatically more attractive if gold plans were available at roughly the same price as silver, and if bronze plans were available at a steeper discount, as it is in many states. The advantage would be compounded if that pricing structure attached to a public option, with a robust network and a benefit structure designed to maximize value for the enrollee within the ACA's metal level constraints.
POSTSCRIPT, 7/2/19: What's true in Washington is also true for any future state-based public options. The prospects of a state public option -- including a Medicaid buy-in -- have always been bedeviled by the subsidized pricing paradox: reducing premiums overall, and in particular benchmark plan premiums, tends to increase premiums for subsidized buyers by reducing the spread between the benchmark and cheaper plans. A public option that prices gold below silver solves that problem, providing a kind of back-door CSR to all enrollees with incomes over 200% FPL -- boosting the actuarial value available at a price below the benchmark from 70% or 73% to 80%. Viewed another way, a gold-cheaper-than-silver public option raises the effective benchmark AV to 80% for enrollees over 200% FPL.
P.P.S. 7/4: It occurs to me that the gold public option plan, cheaper than the silver public option, won't necessarily be below the benchmark silver plan -- e.g., in Washington, where Centene, an insurer that's primarily a Medicaid MCO, probably pays providers less than the PO's 160% Medicare. But it should be close, and perhaps would drive commercial insurers to follow suit -- if state regulators don't effectively compel them, as Fann and Cruz recommend.
Update, 7/8: Some counties in Washington have no bronze plans. The scarcity of providers/plans in many areas of the state is a major motive for implementing the public option. Fourteen out of 39 counties have just one insurer, though those mostly rural counties account for just 9% of enrollees. The eight counties with the most enrollees, accounting for 81% of total enrollment, all have three or four insurers.
Related: Silver loading and 2019 enrollment: a compendium
---
* Lawmakers could have coerced or required participation -- by stipulating that those who accepted public employees' insurance had to accept the public plan in the exchange, or even by making acceptance a condition for licensing in the state. But hospitals and doctors are a hard lobby to cross, and Washington Democrats were not willing to go that far.
** Mandated AVs allow some wiggle room, enlarged by CMS in the Trump era. Allowed variation at each metal level is -4/+2 percentage points from the target level; certain bronze plans can go to +5 (65% AV, close to the allowed 66% minimum for silver. Insurers can manipulate these spreads to create greater or smaller price variation between metal levels. Allowed variation at CSR levels is just +1/-1.
*** Average silver AV in Washington, as in most states with their own marketplaces, is lower than the national average, because 11 of 12 state-based marketplaces are in states that have accepted the ACA Medicaid expansion. In nonexpansion states, eligibility for marketplace subsidies starts at 100% FPL, in contrast to the 139% FPL threshold in expansion states (below which applicants are eligible for Medicaid). Nonexpansion states thus have a very high concentration of silver enrollees who obtain the highest CSR level, AV 94%. Nationally, average AV among exchange enrollees is 87%.
**** Imputing high induced demand to gold plans may be in part a self-fulfilling prophecy, as more attractively priced gold will draw more healthy enrollees, who presumably are less susceptible to induced demand. While plans are not allowed to consider enrollees' health status when calculating induced demand (since risk adjustment is there to compensate for poor health status), the two factors may be hard to separate.
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