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The advocates for more affordable health insurance at Families USA are asking the Biden administration to loosen up the Catch-22 that confronts states seeking to take advantage of the ACA's section 1332 innovation waivers.
1332 waivers enable states to propose alterations to virtually every feature of the ACA marketplace in pursuit of more affordable and effective coverage. The alternative scheme must cover at least as many people at least as comprehensively as the existing marketplace, and must do so without increasing the federal deficit.
As currently interpreted, the deficit-neutral requirement presents a Catch-22: if the state's alternative scheme ends up costing more because more people sign up, the state is responsible for the excess costs, even if the coverage costs less (or no more) per person than the exiting ACA marketplace.
The ACA marketplace is undersubscribed (enrollment never reached half of initial CBO projections), mainly because it was undersubsidized until the (so far temporary) subsidy boosts provided by the American Rescue Plan in March of this year. A more cost-effective alternative -- say, a Medicaid-like market that leaves enrollees with lower out-of-pocket costs because plans pay less to providers -- should increase enrollment. But states generally won't sign on to eat those costs.
The Families USA proposal, in a brief overviewing various possible regulatory actions, relies on Medicaid precedent to float an escape from this conundrum. Asserting that the ACA's core mission is to reduce the uninsured population, and that 1332s as currently constructed effectively forbid states to further that mission, the brief proposes:
In other contexts, federal officials have construed waiver authority to permit increased enrollment of eligible people. For example, Medicaid waivers under section 1115 of the Social Security Act have long been subject to an administratively-imposed requirement of federal budget neutrality. Beginning with then President Clinton’s grant of a Medicaid 1115 waiver to permit the State of Tennessee to cover otherwise ineligible poor adults, CMS has permitted states to juxtapose waiver spending against baselines reflecting state implementation of alternative policies permitted without any waiver. A fixed quantity of federal dollars shifts from a policy the state could have implemented under the statute and instead is used to support the waiver (my emphasis).
Wat?...a state should be able to argue, what we propose to do will cost no more than another thing we could have done. How would that work in the ACA marketplace? What could a state possibly have done to use federal dollars to make coverage more affordable than it is in the existing marketplace?
There is at least one answer. Since at least 2019, Stan Dorn, one of the brief's coauthors, has been urging states to improve affordability by instructing state regulators to require strict "silver loading" -- that is, fully pricing the value of Cost Sharing Reduction (CSR) into silver plans, which increases discounts in bronze and gold plans.
Let's back up, as briefly as possible. The baseline actuarial value of a silver plan is 70% -- that is, it's supposed to cover 70% of the average enrollee's costs. That compares to 60% for bronze, 80% for gold, and 90% for platinum. But CSR boosts the value of a silver plan for low income enrollees -- to 94% at an come up to 150% of the Federal Poverty Level, 87% (at 150-200% FPL), or 73% (at 200-250% FPL).
Originally, the federal government reimbursed insurers directly for the cost of CSR, and silver was priced as if the AV were always 70%. But in October 2017, Trump cut off direct CSR reimbursement. Regulators then allowed insurers to price CSR directly into silver plans, since CSR is available only with silver plans. Since ACA premium subsidies are designed so enrollees pay a fixed percentage of income for a benchmark silver plan, subsidies rose with silver premiums, creating discounts in bronze and gold plans.
But those discounts have been only partial: silver is still generally underpriced. On average, silver plans have a higher AV than gold plans, so gold should be priced lower than silver. When that happens, no one with an income over 200% FPL should buy silver, because silver plans are only worth more than gold up to that income threshold. But that's not true in most states.
A handful of states -- including Maryland, Pennsylvania, Virginia, and most recently, Colorado and Texas (yes, Texas!) have required regulators to price plans more closely in accord with their actual value, as the ACA statute required. Interpreted most strictly (as the Biden administration should do), the statute would require pricing silver as if no one with an income over 200% FPL selected it -- that is, pricing it as platinum (which makes even more sense under ARPA, which removed the income cap on subsidies). Doing that raises premiums, and subsidies, and so cost to the federal government -- but not to the state.
Under the Families USA proposal, a state could say, in effect, "credit us with silver loading to the max -- even though we haven't done it."* Maximal silver loading would boost enrollment: every enrollee would have access to plan with an actuarial value of at least 80% (or 87% or 94%) for the cost of the benchmark premium or less. The state should get credit for that hypothetical extra enrollment too. Add an all-agency outreach/education effort, perhaps with easy enrollment for the uninsured, and enrollment should go up further. Assume that too.
Here's how Stan Dorn put it in an email:
One step is for a state insurance regulator to require carriers to rate based on the assumption of rational consumer behavior – that is, assuming that all silver-tier QHP enrollees are in 87%-AV and 94%-AV plans. That would raise silver premiums more than 20% above gold premiums.
Another step is a massive outreach effort, with state staff or contractors doing outbound calls to people potentially eligible for Medicaid or APTCs, signing them up over the phone.
The question then becomes: what might a state do with a 1332 waiver to improve affordability? If ARPA subsidies are made permanent, high-CSR silver will remain free to enrollees with incomes up to 150% FPL and cost no more than 2% of income at incomes up to 200% FPL (up to about $42/month for an individual). At 200-300% FPL, if ARPA is augmented by maximum silver loading, a gold plan will cost less than 2-6% of income, and less than 8.5% of income at incomes over 300% FPL (at least 20% less, by Dorn's estimate). That's at inefficient cost to the federal government, since the private plans in the marketplace mostly pay much higher provider rates than do public programs (Medicare and Medicaid). But they cost the state nothing.
States could create programs akin to managed Medicaid, open to all incomes, that plow the lower provider payment rates into reducing out-of-pocket costs at all income levels. Minnesota, New York and Massachusetts do this in different ways for enrollees with incomes up to 200% FPL (MN and NY) or 300% FPL (MA). Remaking markets in this way would require heavy legislative lifting and considerable market disruption. More on this, perhaps, in a future post.
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* While preparing this post, I surprised myself by (re)discovering that I'd proposed "synthetic silver loading" in December 2018.
Photo by Tanika from Pexels
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