Thursday, October 21, 2021

If Democrats fail to enhance the ACA or remove the coverage gap, what can the Biden administration do?

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As the extent to which Senators Manchin, Sinema, and other corporate Democrats will eviscerate the original outline of the Build Back Better bill sinks in, it's time to consider the once-unthinkable: what if Democrats fail to extend the enhanced ACA marketplace subsidies enacted in the American Rescue Plan Act (ARPA) in March?  And what if -- which was always uncertain -- they fail to plug the coverage gap in states that have refused to expand Medicaid?

ARPA removed the income cap on eligibility for subsidies (formerly 400% of the Federal Poverty Level) and reduced the percentage of income required to pay for a benchmark silver plan at every income level. Under ARPA, benchmark silver coverage enhanced with strong Cost Sharing Reduction (CSR) is free at incomes up to 150% FPL and capped at 8.5% of income (with no CSR) at incomes over 400% FPL. High-CSR coverage is also free to anyone who received any unemployment insurance income in 2021. 

The enhanced subsidies turbo-charged a huge enrollment surge of 2.8 million during an emergency Special Enrollment Period running from February 15 - August 15 this year. Marketplace enrollment in August 2021 was 15% higher than in August 2020 and 22% higher than the previous August high, in 2016. The Congressional Budget Office (CBO) projects that making the ARPA subsidies permanent will further increase marketplace enrollment by 3.4 million.

The Build Back Better bill would make the ARPA subsidy scale permanent, extend the unemployment benefit for four years, and provide free coverage to those in the ACA's "coverage gap": the failure to offer subsidized insurance of any kind to people with incomes below 100% FPL in the twelve states (including Florida and Texas) that have refused to enact the ACA Medicaid expansion (which the Supreme Court made optional for states in a 2012 decision). BBB would first offer free marketplace coverage to people in the gap, and then, beginning in 2025, stand up a federal Medicaid-like program to cover them.

The Congressional Budget Office estimates that extending the ARPA subsidy scale would cost $209 billion over 10 years; extending the unemployment benefit for four years would cost $10 billion; and closing the coverage gap would cost $323 billion.

That's a lot of money, and Democrats are currently struggling to halve the $3.5 trillion in planned spending over 10 years outlined in the BBB framework. Closing the coverage gap is a huge moral imperative for Democrats. It's also very expensive. As for the ARPA subsidy enhancements: they brought the ACA marketplace much closer to providing the "affordable" coverage promised in the ACA's name. But the marketplace was at least minimally functional (and stable) pre-ARPA, and Democrats have to carve a lot of pounds of flesh out of their original plans.

In recent online chat, friends and I speculated that Democrats almost have to preserve ARPA's extension of ACA premium subsidies beyond the former 400% FPL income ceiling. That helps wealthier people, but it would seem to be a political imperative. Besides the sub-100% FPL coverage gap, the enormous individual market premiums to which people with incomes above 400% FPL were subject was the ACA's most egregious flaw, and those high premiums were Republicans' most effective bludgeon in their demonization of the law. Almost two thirds of the coverage gains anticipated by CBO if ARPA subsidies are extended would be among people with incomes above 200% FPL. As for the rest of the ARPA enhancements...there's going to be a lot of pain in BBB cuts, possibly including here.

Suppose, bleakly, that Democrats do shrink legislative enhancement of the ACA to killing the "subsidy cliff" (capping benchmark silver premiums as a percentage of income at all income levels) and nothing more -- no subsidy boosts at lower income levels, no program for those in the coverage gap. The Biden administration, if willing to act aggressively, could mitigate some of damage, taking various measures to reduce uninsurance and underinsurance. They very likely won't, but they could. Below are three measures that would have substantial impact.

1. Use communication to shrink the coverage gap. This is the biggie.

The coverage gap constitutes the kind of logical and moral travesty we might shake our heads over when reading about, say, the tax practices of the Ancien RĂ©gime*. The ACA stipulated that people with incomes between 138-400% FPL who lacked access to other insurance would be eligible for marketplace subsidies; people with income below the 138% FPL mark would be eligible for Medicaid. The Supreme Court ruled that requiring states to offer Medicaid to all adults* under 138% FPL was unconstitutional. As of 2014, about 25 states refused to do so; at present, 12 still refuse. 

By a happy drafting accident, the ACA also stipulates that subsidy eligibility in the marketplace begins at 100% FPL, rather than the 138% FPL Medicaid threshold. Some two million enrollees in nonexpansion states have incomes in the 100-138% FPL range (and under ARPA, get high-CSR silver coverage for free). According to KFF estimates, however, as of 2019, 2.2 million people with incomes below 100% FPL in those states were uninsured.

The statutory 100% FPL threshold for subsidy eligibility is a somewhat permeable barrier, however. Consider:

  • ACA subsidies are based on an estimate of income in the coming year (or through year's end, if the person enrolls off-season via a Special Enrollment Period granted for a change in life circumstances such as job loss, marriage, divorce, etc.).

  • Many if not most people who are denied subsidies because they project income below 100% FPL have no idea that there is a minimum income requirement.

  • People with incomes below 150% FPL can now enroll in marketplace coverage year-round -- e.g., if their income bumps up for any reason.

  • The government will not demand verification of an income projected over 100% FPL if "trusted data sources" tapped by the exchanges indicate that prior income was below the threshold.

  • The government will not claw back subsidies paid out if income for the year proves at tax time to have been below 100% FPL. That's in the ACA statute: clawback happens only if income proves to be above 400% FPL (pre-ARPA, which as of now is temporary).

Estimating future income is hard, particularly for those paid hourly, working uncertain and variable hours, dependent in large part on tips, working seasonally, or self-employed -- that is, for most low income people. The application on (the federal ACA exchange, used by all nonexpansion states) acknowledges this uncertainty:

In fact the Biden administration has already made it easier to stay out of the coverage gap, on two fronts: 1) it stopped requiring documentation of income estimates over 100% FPL when "trusted data sources" indicate an income below the threshold, and 2) In September, it finalized a new monthly SEP for people with incomes below 150% FPL.  For 2021 alone, it also automatically qualified anyone who received any unemployment insurance income this year -- a grant included in the draft BBB which may not make it into law.

What the administration has not done is spell out the threshold for eligibility. Brokers and assisters often do. Jennifer Chumbley Hogue, CEO of the brokerage KG Health Insurance in Murphy Texas, told me “If somebody calls me and they’re on the bubble, I tell them: ‘the state of Texas did not expand Medicaid. That means, if you cannot project $13,000 of income, you do not get any help. So let me ask you: Do you think you’re going to make $13,000 in 2021?’” I leave the usual response to your imagination.

Like Jenny Hogue, could simply signpost the minimum required income -- on the application, and on the see plans and prices preview tool. Elsewhere, with the help of seasoned enrollment assisters, I have detailed the many ways applicants can lawfully and ethically maximize their income estimates -- e.g., consider tip income, seasonal surges, and coming wage increases (e.g., Florida's minimum wage bumps in 2021 and 2022); minimize rather than maximize deductions if you're self-employed; include all household members' income. 

But more than half the battle is simply knowing the target you have to hit. At a minimum, a finding of zero subsidy, in the plan preview tool or in the application, should be accompanied by an explanation of why. More proactively, the application and preview tool could spell out the threshold (adjusted by household size, which is entered before income) at the point on the form where income is reported/estimated.

The Biden administration is boosting federal funding for enrollment assistance to new highs ($80 million for 2022, after the Trump administration cut funding from a previous peak of $63 million to just $10 million). Assister training could emphasize helping people at low incomes to make sure they count all their income.

2. Mandate strict silver loading, so that all enrollees can obtain a plan with an actuarial value of at least 80% at a premium at or below benchmark.

What is "silver loading"? In October 2017, Trump cut off the direct reimbursement of insurers for providing Cost Sharing Reduction (CSR) subsidies to low income ACA enrollees who select silver plans. (CSR reimbursement was required by statute but never funded by a Republican Congress.) Through 2017, insurers had priced silver plans as if their actuarial value were always the baseline 70%, although CSR raised the AV to 94%, 87% and 73% at different incomes. Beginning in 2018, regulators allowed or instructed them to price CSR into silver plans only. Since income-adjusted premium subsidies are set to a silver benchmark, increasing silver premiums increased subsidies and created discounts in bronze and gold plans. 

Those discounts have been haphazard and partial, however. In most states, silver plans remain underpriced, for at least two reasons: 1) silver is the dominant metal level, and insurers that sell the cheapest and second-cheapest (benchmark) silver plans tend to dominate the market, and 2) the federal risk adjustment program favors silver plans, by assuming that low income silver plan enrollees who get strong CSR will use more medical services than has proved to be the case.  Anticipating the CSR reimbursement cutoff, CBO forecast that gold plans would consistently be cheaper than silver; that has not happened in most states.

As of 2021, three states -- Maryland, Pennsylvania and Virginia -- were effectively requiring insurers to price gold plans slightly below or roughly on a par with silver plans, all other things (e.g., provider network) being equal. In those states, gold plans are available at or below the silver benchmark plan -- that is, at a level deemed "affordable" by ACA standards (ranging from 0 to 8.5% of income, rising with income). 

For 2022, New Mexico has gone further -- requiring insurers to price silver plans as if they off platinum level benefits (90% actuarial value). At incomes below 200% FPL, silver plans are roughly platinum equivalent (94% or 87% AV). With gold priced well below silver, the presumption is that no one with an income over 200% FPL will buy silver plans.  In Albuquerque, the lowest-cost gold plan premium is 11% below that of the lowest-cost silver plan, and 17% below the benchmark silver premium.

Those prices not only make relatively high-AV coverage much more affordable at incomes over 200% FPL. In a pre-ARPA world, gold priced at this level would be a viable lower-cost alternative for some applicants who qualify for strong CSR. Pre-ARPA, a benchmark silver plan for a single person with an annual income at 200% FPL ($25,520 in 2021) would cost about $135 per month. With plans priced as in Albuquerque today, in a pre-ARPA world, a 40 year-old with an income of 200% FPL could get lowest-cost gold for $86 per month (and several other gold plans for just a few dollars more). A 60 year-old with same income would pay just $37 per month for the cheapest gold plan.

CMS should first fix the risk adjustment formula so that it does not favor silver plans and effectively penalize insurers who sell a lot of bronze and gold plans. The agency could then mandate a pricing scheme like New Mexico's -- increasing the value of plans available at incomes over 200% FPL, and providing a viable cheaper option for enrollees under 200% FPL who find silver premiums unaffordable.

3. Change the actuarial value formula. "Actuarial value" refers to the percentage of the average enrollee's annual medical costs purportedly paid by the plan. It's calculated according to a formula promulgated by a unit of CMS. At present, AV scores are misleading to a lay customer, in that the average is skewed by a small percentage of enrollees with very high medical costs, much as the average income in a bar is skewed when Jeff Bezos walks in. Thus a bronze HSA plan with a deductible and out-of-pocket maximum of $7,000, which pays for nothing but preventive care until the enrollee hits the deductible, and perhaps 50% of costs for most services thereafter, may have an AV of 60% because a small percentage of enrollees require care costing tens or hundreds of thousands of dollars, with all costs above the $7000 OOP max paid by the plan. 

As explained to me by Gabriel McGlamery, an analyst at Florida Blue, CMS could change the AV formula by cutting out enrollees with the highest risk scores, i.e. those likely to require the most medical care (out of the AV formula, not out of coverage!). Removing the 1% of enrollees with the highest risk scores might make a plan with a bronze AV (60%) reduce out-of-pocket costs to the level of a silver plan (70% AV) under the current formula, and so on up the line -- a silver plan (70% AV) might offer benefits that would be deemed 80% AV under the current formula. 

Doing this would increase premiums at every income level. But if ARPA's removal of the income cap on subsidies is maintained, that cost would be borne almost entirely by the federal government. By this means, with ACA benefits fixed and funded by statute, the federal government can raise subsidies almost at will. While the government can't reduce the percentage of income required for benchmark silver, they can make bronze the equivalent of current silver (without CSR). Combined with silver loading, an AV formula adjustment could make gold plans, available below benchmark, equivalent to platinum plans by current standards.

Democrats may yet make full ARPA subsidies permanent, and also plug the coverage gap. They may boost pre-ARPA subsidies without going full ARPA. They may plug the coverage gap for only a few years and pray for further extensions -- or phase in coverage gap closure slowly to improve the 10-year CBO score. The options for improving marketplace plan value outlined above would remain relevant under any scenario. The measure for reducing the coverage gap would be relevant if implementation of a fix is delayed, or if a fix sunsets.

* Below, a snippet from The Splendid Century: Life in the France of Louis XIV, by W.H. Lewis (C.S. Lewis's brother). As U.S. politics grows ever more dysfunctional, these passages keep coming to mind:

Photo by Monstera from Pexels


  1. Thank you for posting the sharp observation that the negotiations in question involve the critical permanent removal of the 400% of FPL "subsidy cliff", and the filling in of the no-Medicaid-expansion "coverage gap". These are two of the critical flaws of the ACA in its current form.

    Your bringing up of these details is critical in light of the media, especially the supposedly competent NY Times and Washington Post, omitting or at best muddling these and other important details.

    With the subsidy cliff back in place (no capping of net premium at 8.5% of income), some 2019 calculations I did become again indicators of the problem. In an example with real premiums, some people needed to pay 22% of income for premiums alone, and allow 41% of income for premium plus copay. NOT affordable! (Numbers now, with the subsidy cliff again in effect, may be yet worse due to medical inflation and rising o.o.p. maxes.)

    (These calculations were in the bronze and silver plan examples here in a part of the Wikipedia article on the ACA that I inserted: . The calculations and eventually the whole section was removed, though no errors were ever found, by other editors outvoting me, or citing unanimous-agreement-required rules, for Wikipedia content. These editors may or may not have been politically motivated in the removal.)

    Otherwise, good job on catching the "silver loading" detail. I think that one has been completely of the NY Times and Post as well. Too complicated for them. (It does, fortunately, make the Health Affairs blog.)

    As I see it, with the resolution of the two problems you point out in doubt, as well as the others unresolved: "family glitch", excessive copays, estate recovery of possibly all bills paid out by expanded Medicaid for people 55-64 in many states, the country really remains in failure territory for something all other developed countries give all citizens.

    (Even if all five mentioned problems could be fixed, there remain structural problems with our complex insurance system that just don't exist in, for example, the UK and Canada. Such as: in those countries, you don't have to worry about going bankrupt from not being able to pay your premiums because you are incapacitated or in a coma, and further, you don't have to worry about being thrashed back and forth between a Medicaid provided network and a private provider network as often as every two months (due to income changes) as you do in say my own Massachusetts. (For chrissakes, I have two med appointments that I have to wait 6 months each for now. How is one supposed to handle that kind of thing if one is thrashed back and forth between networks every few months?)

    Keep up the good work Andrew!

  2. When I sold individual health insurance, a lot of my customers were in that 400 per cent of poverty bracket and were getting killed by ACA premiums. (for a single person, 400% of poverty is $51,520 a year and they sure do not feel very wealthy!)

    The Republicans played this both ways. They stoked the resentment that this group felt against the ACA, but then never supported the obvious solution of extending subsidies. They were glad to let this one segment of their base just twist in the wind.

    As you have pointed out, virtually everyone in America gets some kind of subsidy for health insurance -- Medicare, Medicaid, tax-free employer coverage, ACA subsidies, et al. The current funding expansions reached out to the last 8-10 million who have had no subsidies.

    The cost of extending those subsidies appears to be about $60 billion a year, as you point out. (I never use 10 year estimates). It sure seems OK to me to spend this extra $60 billion, given how extravagant all the other subsidies are.
    Now we are down to the