Wednesday, November 18, 2020

Pennsylvania transforms its ACA marketplace with one sentence

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With a two-step regulatory change*, Pennsylvania has transformed its ACA marketplace. The measure is probably the most impactful single step a state has taken to improve its marketplace. And the move won't cost the state a cent. It simply picks up money the Trump administration left on the table when it cut off direct federal reimbursement of insurers for the Cost Sharing Reduction (CSR) subsidies they must provide to low income marketplace enrollees who select silver plans.

The new Insurance Department regulation (Revision 1b here) requires individual market insurers filing rate submissions to make this change:

CSR Defunding Adjustment of 1.20 – all individual silver exchange plans.

In other words, price silver plans proportionately to their real actuarial value (as estimated by the Department) with CSR priced in -- at 1.2 times the value of silver without CSR.  

That change dates back to 2020. For 2021, the Dept. of Insurance added a requirement that insurers must base their estimates of "induced demand" at each metal level on the scale HHS uses for its risk adjustment program, also incorporating the CSR adjustment.  "Induced demand" is a measure of how much each increase in coverage generosity is likely to stimulate more use of medical services. Left to their own devices, insurers have tended to overestimate the "induced demand" imputed to gold plans, leading to their overpricing relative to silver.

The change standardizes, and therefore in almost all cases increases, silver loading -- pricing of CSR into the premiums of silver plans only, since CSR is available only with silver plans (see note below). The result: statewide, the cheapest gold plan costs less than the benchmark silver plan against which premium subsidies are set, and bronze plan discounts have increased as well. 

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The move effectively resets benchmark coverage in Pennsylvania to a gold standard -- a major plank in Democratic ACA reform plans, including Biden's.  Gold plans have an actuarial value of 80%.  For marketplace enrollees who qualify for subsidies -- those with incomes below 400% of the Federal Poverty Level (FPL) -- the benchmark (second cheapest) silver plan costs between 2% and (almost) 10% of income, rising with income.  For those with incomes below 200% FPL, that silver plan has an actuarial value of 94% or 87% -- higher than gold. Above 200% FPL, however, silver AV is 73% or 70%. Now, Pennsylvanians with incomes above 200% FPL can get a gold plan, with 80% AV, for a premium lower than the benchmark. 

The results? Compare bronze and gold plan premiums in Pennsylvania in 2021 vs. 2020. Posted below are lowest-cost bronze and gold plan premiums for a single 40 year-old with an income of $25,000 per year -- just under 200% FPL** -- in the five Pennsylvania counties with highest 2020 enrollment and the five counties at the enrollment median. (Four of the five highest-enrollment counties, including and abutting Philadelphia, have identical or near-identical pricing.)

Lowest-cost Bronze and Gold Plan Premiums, Pennsylvania, 2020 vs. 2021
Single 40 year-old, income $25,000

    Sources: CMS OPE County-level 2020 Public Use File 
                   KFF: How ACA marketplace premiums are changing by county, 20201 

Silver loading, to back up briefly, is a premium pricing practice that began in 2018 in response to Trump's abrupt cutoff in October 2017 of direct reimbursement to insurers for CSR. State regulators  responded by permitting insurers to price CSR into silver plans only, since CSR is available only with silver plans. 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.

Silver loading has had a significant impact on the marketplace since 2018, probably boosting enrollment by about 5% and triggering an exodus out of silver and into bronze and gold plans at incomes above 200% FPL, as illustrated in the table below. (Below 200% FPL, CSR, available at no cost to enrollees, boosts the value of silver plans beyond the value of most bronze and gold plan discounts.)  

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

Total bronze
% bronze
Total silver
% silver
Total gold
% gold
 Source: CMS  state-level public use files.

But the impact of silver loading nationwide since 2018 has been haphazard and underpowered. Discounts may appear in one zip code and not the next; they appear one year and are gone the next (large discounts came and went in much of Pennsylvania). And the discounts usually have not fully reflected the real average value of silver plans when CSR enrollment, which in most states exceeds 50% of total silver enrollment and in some states much more, is figured in.

Most notably, gold in most markets has not been priced below silver, though the average actuarial value of silver plans obtained by all enrollees (most obtaining CSR) exceeds that of gold plans (80% AV). As I noted recently, the persistent overpricing of gold violates the expectations of those who forecast the pricing effects of silver loading when the cutoff of CSR reimbursement loomed as a threat (or opportunity, as those who figured out the effects regarded it). On average, if average metal level premiums in the marketplace were proportionate to actuarial value, both bronze and gold plan premiums would probably be about 10% lower than they are now.

For more than a year, actuaries Greg Fann and Daniel Cruz have been advocating that state regulators require insurers to price plans at each metal level proportionately to their real actuarial value -- in other words, to maximize and regularize silver loading (see also here). They have taken their case to state regulators - -whether Pennsylvania is among them I can't say. I have enthusiastically seconded the recommendation and charted the effects of silver loading and the relative lack thereof in many posts, some of them indexed here. Stan Dorn at Families USA also supports measures to boost silver loading.

Since the Republican effort to repeal the ACA's core programs failed in 2017, blue states have experimented with a host of measures to improve affordability in their marketplaces -- from reinsurance (which reduces premiums for unsubsidized enrollees but tends to raise them for the subsidized) to state-imposed individual mandates (following the Republican Congress's zeroing out of the national mandate penalty) to supplemental subsidies (California and New Jersey) to a state-run pubic option of sorts (Washington) and a switch from the federal exchange to newly established state-based exchanges (Nevada, Pennsylvania, and New Jersey).  

There's a good chance that simply requiring insurers to maximize silver loading will yield more benefit to enrollees than any other measure. Doing so won't cost states a dime -- it simply makes full use of the extra federal subsidy funding Trump made available when he cut off direct CSR reimbursement -- a  measure that he boasted would render the ACA virtually dead.

* Correction:  Originally I reported erroneously that the CSR defunding adjustment was newly added in 2021. It was added in 2020; this year's requirement that insurers stick to HHS's "induced demand" scale was added this year, and appears to have reduced bronze/gold pricing relative to silver. Thanks to Daniel Cruz for the correction.

** Below 200% FPL, most enrollees are likely still better off in silver plans, which have an AV of 94% at incomes up to 150% FPL and of 87% at 150-200% FPL. In some PA counties, lowest-cost silver is also much cheaper than benchmark (second cheapest) silver. At an income just over 200% FPL, however ($25,520), gold plans are superior to silver and few enrollees should find silver a good value. Gold premiums at $26,000/year are about $12/month higher than at $25k. At an income of $26k, gold plan premiums and deductibles run about $1500-2000 below those of silver plans (which carry weak CSR, raising AV from a baseline of 70% to 73%, at that income level).

Update, 11/19: There is considerable Twitter discussion as to whether a distortion in the risk adjustment formula used by CMS, currently adopted by all states, will undermine state action on this front. Risk adjustment compensates insurers whose clients use more medical services than the regional norm and penalizes those whose clients use less. The current formula is based on usage in employer-sponsored insurance (the vast bulk of private insurance) and favors silver plans, imputing more "induced demand" stimulated by Cost Sharing Reduction (which sharply reduces out-of-pocket costs) than the market has reflected -- perhaps because CSR enrollees are low income, and even the reduced out-of-pocket costs inhibit care more than anticipated. Thus insurers that attract too much enrollment at other metal levels may suffer in the zero-sum risk adjustment game. The obvious solution is for CMS to fix the risk formula; the debate is whether state action in the absence of such adjustment will create new market distortions. So far they have not seemed to (Virginia and Maryland are other states that have used regulation to boost silver loading), but insurers may adapt over time and make their bronze and gold offerings less attractive. 


  1. It's good to see the low numbers up there for premiums for PA in a certain income group. Well under $200 a person all, with better rates this year (under $150 all) due to state regulatory handling around silver loading.

    (Silver loading: most people were unaware of that successful state reaction to Trump's dropping Federal payments to insurers for cost-sharing reductions. The Health Affairs covered it nicely,

    e.g. , so some of us knew about it.)

    (The Health Affairs blog "Following the ACA" subsection is great!)

    Of course, the numbers presented in this blog post, to illustrate the success of the regulation only, do also present an overly positive picture of the success of the current ACA to those not familiar with all of the details.

    Just under 200% Federal Poverty Level is a case with very substantial premium subsidies under ACA formulae. (Though not picked up in the exhibited numbers, that class also gets special lower copays, from that cost-sharing reductions itself. This group is very well treated under the current ACA.)

    But not all groups are so well treated. (Biden has proposed some fixes to improve this, but he's dead in the water with the Senate.)

    Thus, a while back (2019), knowing the structure of the premiums and subsidies, I went looking for exact rates for people who were ill-treated by the current ACA. A common case existed where people would need to allow 40% of income for premium plus out of pocket max copays.

    Such a case would be a couple, 62 years old, income just over the 400% of Federal Poverty Level "subsidy cliff", in a state like IL that allows the max premium ratio 3:1 old to young.

    Specifically, on the second lowest cost silver plan middle of last year, I got, for the couple

    income (just above 400% FPL) $84, 731
    premium: $21,266
    o.o.p. max $15,800

    Similar numbers, I am confident, will come up now, for 2021, on

    (Those numbers I have just pulled from my old Wikipedia ACA article section called "Problems"

    which, though no one ever found any inaccuracies, was ultimately pulled by two other Wikipedia "editors" voting against me 4 months before the recent election.

    However, those 40% of income numbers were pulled much earlier, by a single editor, using an option, under Wikipedia rules, of any one person being able to veto the presence of any calculation, even if as simple as dividing an after-subsidy premium by an income.

    This kind of legalistic nonsense has to be a factor in why we can't solve our problems. The Supreme Court has notably been tied up in the silly question "If a penalty for a mandate, judged a tax, is now $0., is it still a tax?"

    I can't help but think that we have people with completely with completely the wrong skills sets working on the handling of our most serious problems.)

  2. Thanks for the illustration. The ACA does do a good job for people who are just broke, or who can live off assets and thereby keep their taxable income very low.

    As you point out, people who are older, have higher incomes, and wind up in the individual market are deeply harmed by the ACA.

    How much would it cost to fix this? If the couple shown here earns $84,000 a year, and the subsidy cliff was removed, then premiums would be limited to perhaps 9% of income.

    So their net premium would be about $7500 a year. Their subsidy from the ACA would be about $14,000 a year.

    The key question for budget analysts is this: how many couples are in this boat? (i.e. over age 55, higher incomes, but stranded in the individual market)?

    If the answer is one million, then lifting the subsidy cap would cost $14 billion a year. Not the end of the world, but not peanuts either.

    Basically this is just one of the fixes that the ACA needs. Every social insurance program for the last 70 years has needed similar fixes over time.