Thursday, August 22, 2019

Surprise! New Jersey ACA marketplace outperforms the national market

When CMS reported enrollment totals in the ACA marketplace at the end of Open Enrollment last December, the news for New Jersey was disappointing.

Despite (or per below, partly because of) a 9% average reduction in premiums last year, fruit of a new reinsurance program and a state-enacted individual mandate, on-exchange enrollment dropped 7.1% -- a performance that lagged the national marketplace (down 2.7%) and the 39 states that rely on the federal platform (down 3.8%) -- though right at the median for states that have expanded Medicaid (and so get less juice from silver loading)*.

When the state released off-exchange numbers in June, the results provided a measure of consolation. Off-exchange enrollment was up 3%, shrinking the total individual market enrollment loss to 4% from Q1 2018 to Q1 2019.

The main cause of the contrary results is not hard to find. Three quarters of on-exchange enrollment in New Jersey is subsidized.  In David Anderson's pithy formulation, "Reinsurance, all else being equal, helps the unsubsidized and hurts the subsidized." That's true of any measure or market force that reduces average premiums. When the benchmark (second cheapest silver) plan premium goes down, subsidies are reduced accordingly, and price spreads between the benchmark and cheaper plans tend to shrink, reducing discounts.

That was the case in Jersey in 2019, where bronze plan premiums for subsidized buyers increased by about 10-20%, and the cheapest silver plan available was also up modestly. Conversely, the 9% drop in unsubsidized premiums brought needed relief to enrollees reeling from premium hikes north of 20% in 2018. Unsubsidized enrollment may well have been further boosted by cheaper silver plans offered off-exchange only (which also may have drawn some of New Jersey's substantial on-exchange unsubsidized enrollment off-exchange).

This week, national stats and estimates for off-exchange as well as on-exchange enrollment were published by CMS and the Kaiser Family Foundation. And -- surprise! -- according to Kaiser's estimate of national enrollment, New Jersey's individual market outperformed the national market in 2019.

While Kaiser shows subsidized on-exchange enrollment up slightly in 2019, it projects roughly a 16% drop in off-exchange enrollment, from 2.5 million in Q1 2018 to 2.1 million in Q1 this year -- a moderation after huge off-exchange losses in 2017 and 2018 (50% net), years in which premiums spiked more than 20%. The  projected 16% drop this year casts new light on New Jersey's 4% increase (a rebound from a 14% loss in 2018, well below the national average).

In total, Kaiser projects a 5% drop in national individual market enrollment this year. New Jersey's loss, again, was 4%.

Determined to take action in 2018 to strengthen its marketplace, New Jersey's incoming governor and Democratic majority legislature had a choice: bolster subsidies for those who were already subsidy eligible, or take action to reduce premiums for the unsubsidized. A state individual mandate was expected effectively to help both markets -- and also to raise about $100 million per year. That money could have been used to "wrap" state premium (or cost sharing) subsidies around the federal ones, as Massachusetts and Vermont have done (and as California and Washington will do going forward).

But opting for a federal reinsurance program waiver leveraged the state cash available by adding an estimated $210 million federal dollars to the pot (reduced by CMS after enrollment season to $180 million). That's because CMS has invited waiver proposals seeking federal funding for reinsurance programs, which, by reducing premiums, reduce federal subsidies: the projected savings are "passed through" to states.

New Jersey went for the federal gold -- and the results appear to illustrate the tradeoff. Minus reinsurance, premiums would be about 15% higher. If off-exchange enrollment performance had matched Kaiser's estimate for the nation, off-exchange enrollment might be down about 17,000 from its current mark. On-exchange enrollment, meanwhile, is down about 13,000-14,000 from Q1 2018.

The choice -- and the tradeoff -- illustrates a major ACA design flaw. If subsidies were adequate -- that is, if benchmark plans were truly affordable, and offered coverage with affordable out-of-pocket exposure -- price spreads wouldn't matter so much: larger-than-normal discounts relative to the benchmark would be so much gravy. As things stand, state lawmakers have to choose which constituency to serve -- moderately affluent people who find coverage unaffordable (imagine earning $50k and paying $1000 per month, as older enrollees sometimes must), or low income people who find subsidized coverage too rich for their blood (imagine earning $30k and looking at a plan with a $3,000 deductible at $200 per month).

New Jersey made a choice -- possibly not optimal, but defensible. Further state efforts to strengthen the market -- e.g., a state-run marketplace that will deploy insurer contribution fees to boost advertising and enrollment assistance -- are forthcoming.

Is New Jersey's unsubsidized marketplace enrollment migrating off-exchange? (12/12/18)
New Jersey's Disappointing 2019 ACA enrollment: Some perspective (1/4/19)
New Jersey's off-exchange enrollment rose in 2019: Did cheap off-ex silver help? (6/18/19)

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, inflated silver premiums create discounts for subsidized buyers in bronze and gold plans. States that refused to expand Medicaid have a heavier "silver load," because eligibility for marketplace subsidies, and so for the highest level of CSR, begins at 100% FPL in those states, as opposed to 138% FPL in expansion states.

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