Tuesday, November 19, 2019

Hey blue states: How about offering a public option off-exchange only?

Louise Norris, clearest of expositors, has some mildly ambiguous wording here that set off a lightbulb:
Colorado enacted legislation in 2019 that directed the state to explore ways to create a public option health insurance program that could offer a lower-cost alternative for people who buy their own health insurance.
Eureka: Why doesn't a state offer a public option off-exchange only? That would solve the dilemma caused by the ACA's underfunded subsidies: measures that reduce ACA marketplace premiums for unsubsidized  buyers tend to raise them for subsidized buyers.  (Colorado is not moving toward this option.) N.B. in most states, ACA-compliant plans are offered off-exchange as well as on-exchange. This public option would be ACA compliant.

Subsidized enrollees pay a fixed percentage of costs, varying by income, for the benchmark plan, which is the second cheapest silver plan in their area. When premiums go down, the "spread" between the benchmark and cheaper plans tends to compress, reducing discounts for cheaper plans.

A public option, presumably offered at a relatively low (if not the lowest) premium in a given marketplace, would have an unpredictable effect on premium spreads, but would probably tend to compress them, in part by driving the competition to price lower than it otherwise would have.

Silver loading, the marketplace's reaction to Trump's October 2017 cutoff of direct federal reimbursement to insurers for separate Cost Sharing Reduction (CSR) subsidies, intensified this dynamic, as the pricing in of CSR into silver plans only (since CSR is available only with silver plans) created haphazard but often dramatic discounts in bronze and gold plans. Measures that reduce premiums also reduce silver loading effects.

If the ACA were adequately subsidized, a benchmark plan with the standard subsidy would provide adequate coverage at an affordable price to all who qualified for subsidies, and any discounts in plans offering less or more coverage (bronze or gold in the current structure) would be gravy. But that's not the world we live in. For enrollees with incomes too high to qualify for CSR, silver plans can carry single-person deductibles averaging about $4,000 and rising as high as $6,000. They cost up to 10% of income for the higher-income subsidized. The deal looks unaffordable and unattractive to many in the 200-400%* FPL income range, the upper end of subsidy eligibility.  In that income range, silver loading has provided a major boost, probably adding about 500,000 to on-exchange enrollment totals. A public option, like reinsurance, would tend to reduce silver loading effects.

Some of the 45 states that allow silver loading have encouraged insurers to offer off-exchange silver plans that are free of the CSR load, thus holding unsubsidized buyers harmless for the boost in silver premiums. A public option offered off-exchange only would likewise provide relief to the unsubsidized while avoiding harm -- with regard to pricing at least -- to the subsidized.

There's another reason to offer a public option off-exchange only, at least for the present. Colorado's finalized public option plan looks to the future, when a Democratic administration would likely be sympathetic to state "innovation waiver" proposals, an option established by the ACA, designed to boost coverage. Louise Norris explains:
The State Option will be available as of 2022, with premium savings of 9-18 percent (and potentially greater savings if the state secures a 1332 waiver that allows Colorado to harness the premium subsidy savings that stem from the lower premiums; these additional savings could be used to provide additional benefits, such as dental coverage or additional cost-sharing reductions and/or premium subsidies....
Colorado is estimating how much the public option will save the federal government in subsidies and planning to ask for those savings back, as some dozen states have done successfully with waiver proposals to establish reinsurance programs, which the Trump administration looks on with favor. Innovation waiver proposals can change most elements of the ACA marketplace structure, but they must be budget-neutral for the federal government. Because silver loading has increased premiums as well as subsidies (at a cost estimated by CBO in fall 2017 of $194 billion over ten years), progressive organizations like Families USA are advising blue states to boost silver loading now, thereby boosting federal costs and increasing the pot available to them if/when they have a Democratic administration to submit waiver proposals to. Offering a public option off-exchange only avoids the converse: reducing the federal tab for subsidies now and thereby reducing the future pot available for waiver proposals. Asking for reduction of costs incurred by silver loading at the time a waiver proposal is submitted is probably a stronger case than estimating how much a public option has saved.

To offer a public option off-exchange only is to focus narrowly on premiums. As Louise explains, Colorado has other goals for its public option: ensuring that viable plans are available in rural regions, and designing plans that make high-value care, e.g., primary care and mental health care, available pre-deductible.  Those goals would not be advanced by offering a public option off exchange only.

But the massive premium hikes of 2017 and 2018 have decimated individual market enrollment among the unsubsidized, basically halving it since 2016. At the same time, silver loading has significantly improved the marketplace value proposition for the higher-income subsidized population. An off-exchange-only public option would provide premium relief where needed, while preserving the Trump-induced accidental silver loading windfall where it's working.

Related: Should states pursue reinsurance for their ACA marketplaces?

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* Enrollees with incomes in the 200-250% FPL qualify for a weak level of CSR that barely changes the dynamic.  CSR has a major impact only at incomes up to 200% FPL, where it raises the actuarial value of a silver plan from a baseline of 70% to 94% (at incomes up to 150% FPL) or 87% at incomes in the 150-200% FPL range). At 200-250%, CSR raises AV just 3 points, to 73%.

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1 comment:

  1. Pondering if a public option offered off-exchange only would actually cut into the potential federal $$ drawn down from the 1332 waiver. The 1332 is framed is not an absolute part of the proposal, but there would be trade offs in how much the state would potentially have available for reinsurance (or whatever else they may opt to do with 1332 funds).

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