Thursday, October 24, 2019

Silver loading goes into reverse in 2020


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CMS has published ACA marketplace premiums for 2020.  The top-line news is that premiums have dropped 3-4%.  The key point for subsidized enrollees (69% of the ACA-compliant market) is that silver loading has gone into reverse -- and consequently there will be fewer discounted plans available. That's because benchmark silver plan premiums -- the second-cheapest silver plan in each market, which determines subsidy size -- have dropped more sharply (-4%)  than average premiums for the cheapest plan at each metal level (-3%).

Silver loading, recall, 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. More states also encouraged sale of load-free silver plans off-exchange, which holds unsubsidized buyers harmless for the spike in silver plan premiums.

Silver loading worked in 2018, boosting subsidized enrollment by perhaps 350,000, and intensified somewhat in 2019, boosting enrollment by about 500,000 compared to what it would have been if CSR were still reimbursed separately, according to an analysis by Aviva Aron-Dine. The expectation was that gains would continue to increase over time.  In May 2018, CBO forecast that silver loading effects would take five years to develop fully: Silver loading would boost silver plan premiums by 10% in 2018 and by 20% in 2021 (see box on p. 9).  In total, CBO forecast, silver loading would boost enrollment by 2 to 3 million in most years --  offsetting factors depressing enrollment, such as repeal of the individual mandate.

This year there's a monkey wrench -- actually two. The first is the drop in premiums -- a reaction to the massive overpricing of 2017 and 2018* for which the bill to insurers is coming due in the form of MLR rebates. (MLR refers to Medical Loss Ratio, the percentage of collected premiums spent on enrollees' medical bills. The ACA requires an MLR of at least 80% -- when it's lower, insurers have to rebate enrollees. It's calculated on a 3-year average.)  If premiums go down evenly across metal levels, the "spread" between the benchmark plan, which determines subsidy size, tends to shrink, making cheaper plans more expensive. 

The second monkey wrench may have more impact on enrollment: benchmark premiums have decreased more than premiums for the average lowest cost plan (LCP) at each metal level.  That reduces the discounts available at each level (including silver, where one plan is cheaper than the benchmark). Premiums for the LCP at each metal level are rising for subsidized enrollees in 2020 -- and most steeply for the cheapest silver plan:

That wasn't supposed to happen. Silver plans should get more expensive relative to other metals every year until the value of CSR is fully priced in -- which is far from the case at present. How's that? Let's back up a second.

Because of CSR, the actuarial value** of silver plans varies with income, from 70% for enrollees with incomes over 250% of the Federal Poverty Level (FPL) to 94% for those with incomes up to 150% FPL. Until 2018, silver plans were priced as though the AV were 70% across the board, and insurers were reimbursed separately for providing CSR. Now, however, silver plans sold on HealthCare.gov, the federal platform used by 39 states (and the basis of CMS's stats) have an actuarial  average AV of  87% -- well above the AV of gold plans. On HealthCare.gov, 76% of silver plan enrollees have CSR-enhanced coverage that raises AV to  94% or 87%.  

In 2018 and 2019, benchmark (silver) premiums and silver premiums generally did rise more than bronze and gold premiums. According to Aron-Dine, in HealthCare.gov states "the average benchmark premium was 41 percent higher than the average lowest-cost bronze premium in 2019, compared to 21 percent higher in 2017" and accordingly, "in a typical state, silver loading reduced annual premiums for non-silver plans by about $1,100 in 2018 for a 45-year-old, PTC-eligible consumer."

As people at higher income levels transfer out of silver plans into bronze or gold -- which they have done for two years running (silver selection at 201-400% FPL has fallen from 60% in 2017 to 35% in 2019) -- the average AV of silver plans rises, and silver premiums should rise faster than premiums at other metal levels, which have a fixed AV. This year, they didn't.  Offsetting the actuarial case for higher silver premiums is the competition to capture silver plan enrollees, who still account for 59% of all enrollees on HealthCare.gov. This year, new insurers have entered the market for second straight year, after sharp drops from 2016 through 2018 -- and competition seems to push silver prices down disproportionately.  

The premium increase in lowest cost silver plans for the subsidized is worrisome for low income enrollees. At income up to 200% FPL, enrollees have mostly stuck to silver plans, as the value of CSR -- a free added benefit -- exceeds the value of most bronze and gold plan discounts. But while silver loading has bolstered enrollment at 200-400% FPL (up less than 1% from 2017 to 2019), enrollment at 100-200% FPL has fallen 10% from 2017 to 2019. 

Silver loading boosts ACA subsidies, and done right, does not harm unsubsidized enrollees, as gold and bronze plans, along with off-exchange silver plans, are free of the CSR load. Actuaries Greg Fann and Daniel Cruz have recommended that state insurance regulators require insurers to price plans at each metal level more in accord with actuarial value, boosting silver loading effects -- a proposition I've explored and supported in multiple posts. But it's not happening this year.

If New Jersey's 2019 experience is any indication, subsidized enrollment in HealthCare.gov states may drop this year, while unsubsidized enrollment (on- and off-exchange) may uptick, or at least drop less than it has in recent years (unsubsidized enrollment in ACA-compliant plans dropped 15% from Q1 2018 to Q1 2019, according to the Kaiser Family Foundation, and about 50% since 2016). In Jersey in 2019, a new reinsurance program dropped premiums, which increased the price of bronze plans and the cheapest silver plans for subsidized enrollees. Subsidized enrollment dropped 7%, above the 4% average drop for HealthCare.gov states, while unsubsidized enrollment increased 3%.

Incidentally, those who forecast silver loading effects in advance -- the Urban Institute's Linda Blumberg and Matt Buettgens in January 2016, CBO in August 2017 -- focused mainly on gold plans, which should be cheaper than silver plans when CSR is priced into silver. That has happened to a degree: in 2019, a gold plan was priced below the benchmark in 1136 counties in HealthCare.gov states, down to 937 this year, and gold plan enrollment across all states has doubled since 2017, to nearly a million, or 8% of all enrollment.   But bronze gains have had a bigger impact. Here's the breakdown in HealthCare.gov states at incomes in the 201-400% FPL range, where silver loading has its chief effects:

Enrollment by metal level at 201-400% FPL in HealthCare.gov States

Year
Total bronze
% bronze
Total silver
% silver
Total gold
% gold
Total
2017
  969,190
34%
1,706,780
60%
173,881
 6%
2,851,601
2018
1,299,845
45%
1,251,385
43%
337,995
12%
2,891,851
2019
1,428,582
50%
   986,957
35%
427,824
15%
2,863,824

The potential for low cost gold to boost value available in the ACA marketplace is as yet far from realized.

--
* Average benchmark premiums in the ACA marketplace rose 20% in 2017 and 34% in 2018. The premium hikes of 2017 should have been a 1-year correction, as insurers a) realized they'd underpriced since the ACA marketplace's 2014 launch and b) lost access to a federally funded reinsurance program, which phased out after three years.  The 2018 increase was largely attributable to multi-front Trump administration and Republican sabotage, including a) the threat of ACA repeal from January through September; b) the threat of CSR reimbursement cutoff, executed in October; c) the threat of individual mandate repeal, executed in December; and d) massive cuts to federal funding for enrollment assistance and advertising, which likely hurt enrollment at low income levels. Unsubsidized enrollment in ACA-compliant plans, on- and off-exchange, cratered from 6.4 million in 2016 to 3.9 million in 2018, according to the Kaiser Family Foundation.There should be some recovery in the wake of flat premiums in 2019 and the drop in 2020.

** Actuarial value is the percentage of an average enrollee's yearly medical cost that a plan is designed to cover, calculated via a formula mandated by CMS.

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