Tuesday, August 04, 2020

Weak silver loading and state-based subsidies in New Jersey's ACA marketplace

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bronze bowls, bronze plans
weighing the value of low-AV bronze
New Jersey, as noted here last week, is poised to tack supplemental state subsidies onto federal premium subsidies for enrollees in the state's ACA marketplace in 2021. The revenue comes from a state Health Insurance Assessment that replaces the repealed federal tax of the same type, paid for the last time in 2020. 

Word is that the state subsidies will be available to all enrollees with incomes below 400% of the Federal Poverty Level (while the state's reinsurance program, also to be partly funded by the HIA, continues to reduce premiums for unsubsidized enrollees). It looks like the new state subsidies will be in the range of $40-60 per month for a single enrollee.

David Anderson points out that New Jersey might achieve much the same results -- spending federal rather than state dollars -- if it took steps to increase premium spreads between the benchmark (second cheapest silver) plan against which federal subsidies are set and plans cheaper than the benchmark -- i.e., bronze plans and the cheapest silver plan. These spreads are narrower than national averages in the New Jersey health insurance marketplace -- mainly, as Anderson has noted more than once, because the state requires bronze plans to offer higher actuarial values than federal rules allow (AV refers to the percentage of the average enrollee's costs the plan is designed to cover, using required formulas).

The allowable AV range for bronze plans nationally is 56-65%. New Jersey's standardized plans are at the top of that range -- 64-65%. [Update: while AVs as low as 56% are nominally allowed, current caps on the annual out-of-pocket maximum take the de facto minimum bronze AV up to 61%.] In the New Jersey marketplace, the unsubsidized premium for a bronze plan in most of the state is $307/month for a 40 year-old, $70 less per month than the benchmark silver plan. Nationally, according to Anderson, the average spread is $150. As a result,  I noted in my prior post,
At 200% FPL, the cheapest bronze plan in most of New Jersey, with a $3,450 deductible and $6,000 OOP max, costs [a 40 year-old]  $52/month -- about twice the national average.
Premium spreads in the ACA marketplace got a big boost starting in 2018 after Trump cut off direct federal reimbursement of insurers for the Cost Sharing Reduction (CSR) subsidies that attach to silver plans -- and only silver plans -- purchased by low income enrollees. In response to the cutoff, most state insurance departments allowed or encouraged insurers to price CSR into silver premiums only, a practice known as silver loading. 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 result in most states has been an exodus out of silver plans for enrollees with incomes above 200% FPL -- the threshold above which CSR (available only with silver plans) fades to negligibility. But not in the New Jersey marketplace, which has seen no discount in gold plans and negligible discount in bronze. Almost uniquely, New Jerseyans with incomes in the 200-400% FPL range have stuck with silver plans.  Last year I compared metal level selection in New Jersey with that of California, states where enrollees have a similar income distribution:

Metal level selection in New Jersey  and California at incomes 201-400% FPL: 2019

Bronze enrollment
Silver enrollment
Gold Enrollment
New Jersey

Partly as a result of silver loading anemia, subsidized enrollment in the New Jersey marketplace has dropped every year since 2017.  Subsidized enrollment in 2020 (184,542) is 20% below the 2017 total (231,433).  While the state subsidies should end that slide, Anderson argues that the state is leaving federal dollars for premium subsidies (which silver loading increases) on the table:
If New Jersey allowed for lower actuarial value and thus higher deductible/out of pocket Bronze plans, both subsidized and non-subsidized buyers would have more affordable options due to drops in both gross and net of subsidy premiums. This step could be done with limited increases in catastrophic exposure as co-insurance dollars would be transformed into deductible dollars. Individuals with large but not catastrophic expenses such as a knee replacement would pay more cost-sharing while individuals with massive expenses (say a bout with malignant cancer) would still be hitting the same or lower out of pocket maximum.

Everything has a trade-off. New Jersey is electing to make a set of trade-offs that result in higher premiums and modestly lower “normally expensive” out of pocket cost sharing. This policy choice has resulted in New Jersey trying to smooth off some of the trade-offs’ implications with other funds. It could also be smoothed by allowing for lower actuarial values to be sold as Bronze plans.
This is true. I have lamented the effects of New Jersey's silver loading anemia repeatedly.  But there is another side to this.

Anderson and Coleman Drake have done a statistical analysis indicating that broad availability of free bronze plans stimulates enrollment overall. Most of the exodus out of silver plans has occurred at incomes over 200% FPL, and that's good: the discounts above that threshold make bronze and gold plans a better value. Below 200% FPL, however, the value of CSR, provided at no cost to the enrollee, still usually outstrips the value of the bronze/gold discounts created by silver loading. And bronze plans, with average deductibles over $6,500 (except in Jersey, where they're $3,000-3,450), are usually not a good choice for low income enrollees.

For the most part, the lowest income enrollees have not been lured into bronze plans: silver selection at incomes up to 150% FPL still exceeds 85%.  But at 150-200% FPL, silver selection has eroded nationally since 2017, from 83% to 73% in 2020 in the 38 states using HealthCare.gov.  In the New Jersey marketplace, silver selection at low incomes remains high: 92% for those below 150% FPL and 86% at 150-200% FPL in 2019, the last year in which CMS has broken out metal level choice by income level. That's good. But overall enrollment at 100-200% FPL has cratered, down 22% from 2017. The Trump administration's gutting of federal financing for enrollment assistance (cut 84% ) and advertising (cut 90%)  may have had some effect. But the enrollment shrinkage is bigger in New Jersey than in most HealthCare.gov states.

At incomes under 200% FPL, the premiums spread that arguably matters most is between the benchmark (second cheapest) silver plan and the cheapest silver plan. A significant discount in CSR-enhanced silver coverage can make a big difference. At an income of 200% FPL (just below $25,000/year for a single person), a benchmark silver plan costs $135/month in 2020. That's a lot. In some places, the premium for the cheapest silver plan is well below the benchmark, but in general these spreads tend to be narrow, as one insurer often dominates the low price points. That's the case in New Jersey: AmeriHealth controls the spread. In 2020, cheapest silver was $10/month below the benchmark for a 40 year old in most of the state.

Discounting by $40-60 month -- as the New Jersey supplemental subsidy may do --  could have a big impact. At 150% FPL (just under $19,000) the state subsidy will likely wipe out the silver premium. A $40-60 state supplement in that range will also bring bronze discounts closer to the national average.

If New Jersey created a lower-AV standard bronze plan -- say 61% AV-- it might have a multiplier effect with the state subsidies, as Anderson suggests. But absent such a move, the state subsidy should render existing bronze plans free, or close to it, for most people who are eligible for strong CSR silver. Offering lower-AV bronze would chiefly benefit enrollees with incomes over 200% FPL.*

If New Jersey did allow/create a lower-AV bronze plan (it won't, at least in 2021), would people at incomes below 200% FPL who still find silver premiums too rich for their blood find their way to the higher-AV bronze? That depends in part on the decision support tools offered by the new state exchange, to be rolled out November 1.

I could see offering a new low-AV bronze plan at incomes over 200% FPL only. That would probably require a waiver from CMS (Massachusetts offers a high-AV standard plan available only at incomes below 300% FPL, so limiting some plans to set income brackets should be doable).  That's not going to happen. But the New Jersey exchange could highlight the lower-deductible bronze plan for prospective enrollees below 200% FPL who choose to look at bronze plans.

The biggest pricing anomaly in the New Jersey individual market is in gold plans. They're unaffordable. For a 40-year old, the cheapest on-exchange gold plan in New Jersey costs $258/month more than the benchmark silver plan, the widest spread in the country. This despite the fact that the average actuarial value of a silver plan sold on-exchange in New Jersey, thanks to CSR, is equal to the actuarial value of a gold plan (80%).  That's unconscionable. While the risk adjustment formula that CMS applies to ACA plans does favor silver, and so weaken silver loading discounts for gold plans, the New Jersey pricing gap is disproportionate.  As noted above, in the California health insurance marketplace, 20% of enrollees in the 200-400% FPL range enroll in gold plans, compared to 2% in the New Jersey marketplace.  The state Department of Banking and Insurance should find a way to induce insurers to bring gold premiums down.

P.S. I took a more detailed look at the effects of weak silver loading in New Jersey and the state's enrollment performance compared to averages in HealthCare.gov states earlier this year: Juice it, Jersey: What silver loading anemia looks like


*Ghastly as deductibles in the $6,000-7,000 range are, the harsh truth in our expensive and undersubsidized individual market is that bronze plans make more economic sense than silver for people with any substantial economic resources. That's true for unsubsidized enrollees, and for many at the upper end of subsidy eligibility.

Photo by Magicbowls from Pexels

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