Wednesday, July 29, 2020

New Jersey poised to add state premium subsidies to federal in ACA marketplace

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The New Jersey bill that would replace the ACA's repealed health insurance assessment with a similar state tax, S2676/A4389, has passed out of all committees and is scheduled for floor votes in the state Senate and Assembly tomorrow (July 30). Update, 7/31: the bill passed the New Jersey Assembly and Senate yesterday on a near-straight-party vote, after withstanding a late $1 million dark money assault. 

The bill levies a 2.5% tax on fully insured employer plans and individual market plans operating in New Jersey and deposits that revenue in a Health Insurance Affordability Fund devoted to
increasing affordability in the individual market and providing greater access to health insurance to the uninsured, including minors, with a primary focus on households with an income below 400 percent of the federal poverty level [FPL], expanding eligibility, or modifying the definition of affordability in the individual market, through subsidies, reinsurance, tax policies, outreach and enrollment efforts, buy-in programs, such as the NJ FamilyCare Advantage Program, or any other efforts that can increase affordability for individual policyholders or that can reduce racial disparities in coverage for the uninsured.
The bill was amended late to exempt the New Jersey small group market  -- which also means that that market is excluded from benefiting from the Affordability Fund (MEWAs and dental plans were also exempted).

In the immediate term, the New Jersey Department of Banking and Insurance (DOBI) has indicated that it plans to spend the entirety of an estimated $224.4 million* in revenue collected in 2021 on the New Jersey's individual health insurance market. $77 million would go toward the state's share of the reinsurance program implemented in 2018 (designed to reduce premiums to 15% below where they'd be without the fund). The remaining $147.4 million would be used to supplement ACA marketplace subsidies with state subsidies for all New Jersey marketplace enrollees with incomes below 400% FPL.** Those subsidies would be on offer during Open Enrollment this fall, when the state's new state-based marketplace is set to be unveiled and New Jersey bids farewell to, the federal exchange.

As of February 2020, 174,978 New Jerseyans were receiving premium subsidies in the New Jersey health insurance marketplace. Were the extra subsidies to boost enrollment at incomes below 400% FPL to 200,000, the per-person state supplemental subsidy would come to about $60 per month. DOBI has floated a lower estimate, $42 month [see update 4 below]. Supplemental subsidies in this range -- $40-60 per month -- could have a substantial impact.

ACA marketplace takeup is poor among low income enrollees. At incomes up to 200% FPL (just shy of $25,000/year for a single person), Cost Sharing Reduction (CSR) subsidies, offered only with silver plans, strongly reduce deductibles, out-of-pocket (OOP) maximums, and copays. In the New Jersey marketplace, the cheapest silver plan in 2020 has a $300 deductible and $2,400 OOP max for enrollees up to 200% FPL (about $25,000/year for a single person). But many enrollees find the subsidized premium too rich for their blood.

At an income of 200% FPL, the cheapest silver plan in most New Jersey counties costs $124/month for a 40 year-old.  Further, while the insurer practice of silver loading, begun in 2018, has rendered bronze plans effectively free or near-free for most enrollees with incomes up to 200% FPL in much of the country, that's not the case in Jersey.***  At 200% FPL, the cheapest bronze plan in most of New Jersey, with a $3,450 deductible and $6,000 OOP max, costs $52/month -- about twice the national average.

One would hope that added subsidies would have particularly strong impact on younger adults, who are underrepresented in the ACA marketplace. In 2020, a $60/month supplementary subsidy would wipe out the premium for CSR-enhanced silver for a single 27 year-old with an income up to about 150% FPL ($19,000) and wipe out the cheapest bronze plan premium at incomes up to $24,500/year (just shy of  200% FPL).  DOBI's more conservative subsidy estimate, $42/month, would wipe out fewer premiums entirely but would still have a substantial impact on affordability.

One persistent concern for ACA marketplace observers is the percentage of enrollees with incomes under 200% FPL who select silver plans and so access strong CSR. The high deductibles and OOP maxes attached to bronze plans are not appropriate for most low income enrollees. Silver plan selection has generally held steady at 85-90% for enrollees with income below 150% FPL. Since 2018, however, as free bronze plans have become widely available at low incomes, silver selection has dropped significantly among ACA marketplace enrollees with incomes in the 150-200% FPL range, from 83% to 73% in the 38 states that use the federal marketplace CSR takeup is sensitive to premiums, however; silver plan selection is higher in regions where the premium for the cheapest silver plan is significantly lower than the premium for the benchmark (second cheapest) silver plan, which determines subsidy level. The proposed state subsidy would provide a strong discount on high-CSR silver and so likely improve quality of coverage as well as enrollment totals.

One goal of increasing subsidies and therefore boosting enrollment is to improve the risk pool, which should happen when those who have foregone coverage they find too expensive are drawn in, as they are likely to be healthier on average than those who are willing to pay more. The ACA marketplace has been hampered by poor takeup among younger adults. In the New Jersey marketplace, 27% of enrollees in 2020 are ages 18-34, close to the national average. Since premiums rise with age, and subsidies rise so that enrollees at a given income pay the same premium for the benchmark plan regardless of age, the supplemental subsidies have weaker impact among younger adults. That's because at higher ages, the "spread" between the premium for the benchmark and for plans cheaper than the benchmark (bronze plans and the cheapest silver plan) widens as the premium increases.

In the New Jersey marketplace (and broader individual market), AmeriHealth has consistently offered the lowest premiums, and it has kept the spread between the benchmark silver and cheapest silver plans modest. If that remains true in 2021, the cheapest silver plan, discounted by the state subsidy, won't cost a young enrollee much more than an older one.  Age will have more of an impact on the availability of cheap bronze. At present, in most of New Jersey, the cheapest bronze plan costs a 27 year-old with an income of $24,000/year $55 per month. For a 62 year-old at the same income, that plan costs $1 per month.

Going forward, the state might consider more nuanced design for its supplemental marketplace subsidies. One option, floated on a national level in HR 6545, the Health Insurance Marketplace Affordability Act of 2020, is to age-rate the subsidies, that is, increase them in proportion to the premium age curve, as explained in detail by Charles Gaba here. If this measure succeeded in drawing in more young enrollees it would improve the risk pool and so also benefit unsubsidized enrollees, who tend to be older.

As required by the 2019 bill that established New Jersey's state-based marketplace, scheduled to open in time for open enrollment 2021 this coming fall, DOBI has commissioned an actuarial study of options for improving affordability in the New Jersey marketplace. Those options could include various subsidy redesigns, including the age rating mentioned above. The state might also consider a restructuring of federal and state subsidies combined, which would require pursuit of an ACA "innovation waiver" submitted to a sympathetic Democratic administration. Possibilities might include creating a marketplace similar to that of Massachusetts, which offers premiums and cost sharing way below ACA marketplace levels at incomes up to 300% FPL.  The flat subsidies planned for 2021, if they come off and are not well below the levels envisioned, would be a great start.

Update: This bill is under a dark money assault, placing ads against this bill in NJ markets (a friend of mind saw such an ad on Chris Hayes).  A coalition of business trade groups, including longstanding ACA enemies NFIB and the U.S .Chamber of Commerce, is behind an effort to take it down.  Politico's Matt Friedman reports that they're spending $1 million.

Update 2: I have heard from a different source that DOBI is proposing a subsidy range, from $47-95/month for individuals and $188-380/month for families. An inference is that this is for years after 2021, when subsidies might vary according to income or other factors (e.g., age, as discussed above). For 2021, prior word was that the plan is to keep it simple, i.e. keep the subsidies flat [see Update 4 below].

Update 3: To put the $147.4 million slated for state premium subsidies in context, the total cost of premium tax credits issued by the federal government to New Jersey marketplace enrollees in 2019 was $754,791,969. The state subsidy is a substantial 19.5% boost. In 2020, the average premium paid by subsidized enrollees in the New Jersey marketplace was $162 per month  --much higher than the $89/month average in 38 states. That's mainly because the all but one of the 15 states that had not enacted the ACA Medicaid expansion as of 2020 use, and in those states, almost half of all enrollees have very low incomes that generate very high subsidies. New Jersey's relatively weak  silver loading, a pricing practice that inflates silver premiums and therefore subsidies and discounts (see note at bottom), may also play a role. In any case, if $147.4 million were distributed evenly to New Jersey's 184,542 enrollees as of the end of Open Enrollment for 2020, the tack-on extra subsidy would be $66/month.

Update 4, 8/18/20: On July 31, Governor Murphy's office described the state subsidies as follows:
The subsidy program will be available to New Jerseyans with annual income up to 400% of the Federal Poverty Level, which allows an individual earning up to $51,040, and a family of four earning up to $104,800, to qualify for the subsidy program. The estimated average subsidy for an individual would be at least $564 a year, and at least $2,256 a year for a family of four. Actual subsidy amounts will be based on an actuarial simulation study being conducted by the Department of Banking and Insurance in order to maximize the benefit for New Jerseyans.
The language here may imply that the subsidies won't be on a flat basis.


* The bill as currently amended estimates $390 million in revenue in 2021, but this appears to be an error, given lower estimates in earlier iterations when more insurance entities were subject to the tax.

**The state subsidy would be available to enrollees with incomes below 400% FPL who don't qualify for federal subsidies, either because the unsubsidized premium for a benchmark silver plan falls below the ACA's affordability threshold (about 10% of income for incomes in the 300-400% FPL) range or because they have an offer of insurance from an employer. The state subsidy could matter for, say, a 27 year-old with an income of $37,000, who would pay $223/month for the cheapest bronze plan or $290/month for the cheapest silver plan.

*** New Jersey requires bronze plans to maintain a higher actuarial value than the federal standard. Bronze plan deductibles in NJ are $3,000 or $3,450, compared to a national average of $6,506. The higher standard reduces the spread between bronze premiums and the silver benchmark, reducing the value of premium subsidies for bronze plan enrollees.

Note:  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. AmeriHealth in NJ does in fact do this.

1 comment:

  1. This is surely not your fault, but why should fully insured and small group plans be exempt from the 2.5% premium tax?