If BBB remains blocked and ARPA subsidies go poof, what can CMS do to mitigate the damage?

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In the wake of Manchin's weekend declaration that he won't vote for the Build Back Better bill,  I am sure I'm not alone in choosing to hope that this is not game over, that some fragments of Biden's domestic agenda will become law. Still, it's time to face the strong possibility that the major temporary subsidy boosts in the ACA marketplace enacted in the American Rescue Plan Act will expire, and that the marketplace will revert to its under-subsidized pre-ARPA state in 2023.

It's time, then, to recall the various ways the administration can boost affordability in the marketplace without legislation, leaving coverage less affordable than it is now, but more affordable than it was before March 2021, when ARPA was enacted. 

In early December 2020, when Democratic control of the Senate seemed unlikely (and ARPA's subsequent subsidy boosts were in the realm of fantasy), Frederick Isasi and Stan Dorn of Families USA laid out a robust administrative agenda to make coverage more widely available, easier to obtain and more affordable. Much of that agenda involves encouraging and enabling state initiatives. Here I want to focus on four federal measures, three of them laid out in short form by Isasi and Dorn, and three of them addressed in detail (not to say ad nauseum) in this blog.

1. Maximize silver loading. Silver loading is a pricing practice that began in 2018, after Trump cut off direct reimbursement to insurers for the Cost Sharing Reduction (CSR) subsidies that attach to silver plans for low-income enrollees. 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. Those discounts in turn have been (rightly) driving upper-income enrollees out of silver plans. 

But silver plans remain underpriced in most states, and bronze and gold plans overpriced. At incomes below 200% of the Federal Poverty level, CSR raises the actuarial value of silver plans to a roughly platinum level. On average, then, silver plans have a higher AV than gold plans -- but in most markets, gold plan premiums remain well above those of silver plans. 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, according to some analysts, by assuming that low income silver plan enrollees who get strong CSR will use more medical services than has proved to be the case. 

Five states -- Pennsylvania, Maryland, Virginia, New Mexico, and Colorado -- have required insurers to price plans in strict proportion to their actuarial value. In those states, gold plans are available at premiums below those of benchmark silver (a sixth, Texas, has passed a law requiring the state insurance commissioner to issue regulations for 2023 that maximize affordability). New Mexico has directed insurers to price silver plans at a platinum level, i.e., as if no one with an income over 200% FPL will choose silver. That's meant to be a self-fulfilling prophecy, as gold plans in New Mexico are  now considerably cheaper than silver, and offer better coverage to enrollees who cannot access strong CSR (i.e., those with incomes over 200% FPL), silver plans very rarely make sense for enrollees with incomes above that threshold. 

State action to maximize silver loading may prove risky, given the federal risk adjustment program's alleged skew toward silver plans, which places insurers who sell a lot of bronze and gold plans at a disadvantage. CMS should fix the risk adjustment system and mandate nationally the strict silver loading standard in place in New Mexico. That would create an effectively platinum benchmark, and might generate a market in platinum plans, now virtually nonexistent, for enrollees with incomes over 200% FPL.

If the ARPA subsides lapse, the ACA's income cap on subsidies will snap back in place, rendering perhaps 3 or 4 million enrollees subsidy-ineligible. For them, discounted off-exchange silver plans, free of the CSR load, should remain available. 

2. Boost actuarial value. The bronze-silver-gold-platinum metal levels that structure the ACA marketplace are defined by "actuarial value" (AV) - -the percentage of the allegedly average enrollee's annual costs that the plan is designed to cover.  AV is not a fact of nature; it's a government construct, derived via a calculator promulgated by CMS. At present, the small minority of enrollees who rack up tens or hundreds of thousands of dollars in medical costs skew the averages, as Jeff Bezos walking into a bar skews the average income of those present. Thus a plan that by AV formula covers 70% of "the average enrollee's costs" may have a $5,000 deductible and require 40% coinsurance for most services. For 99% of enrollees, that plan doesn't come close to covering "70% of costs." For someone whose costs far exceed the annual out-of-pocket limit, however ($8,700 is the highest allowable OOP max), the plan may cover 95% of costs.

CMS could change the formula by excluding enrollees with predictably high costs (those with high "risk scores") from the calculation. Gabriel McGlamery, a health care analyst at Florida Blue and formerly at CMS, estimates that cutting out enrollees with a risk score above 20 (removing only about 1% of enrollees) would reduce the AV of a silver plan currently pegged at slightly above 70% to about 62%, and the AV of a bronze plan currently pegged at slightly above 60% down to about 50%. CMS could set the cut point wherever it wishes, effectively raising the value of the ACA's statutory AV levels (60% for bronze, 70% for silver without CSR, 80% for gold, etc.). 

If the ACA's income cap on subsidies is restored, a downside of this measure would be the loss of the plans with the lowest unsubsidized premiums in the current marketplace, as bronze plans might effectively offer silver coverage (by current standards) and be priced accordingly. Strict silver loading, which creates discounts in bronze and gold plans, could offset this weakness.

3. Rope-bridge the coverage gap. Perhaps the worst effect of a block on ACA improvements in the BBB bill would be failure to close the "coverage gap" in 11 states that have refused to enact the ACA Medicaid expansion. In those states, eligibility for ACA premium subsidies begins at 100% FPL, and most single adults with incomes below that threshold (as well as many parents) are ineligible for Medicaid. Thus they have no access to subsidized health coverage. The Kaiser Family Foundation estimates that slightly over 2 million uninsured people in those states are in the coverage gap, more than half of them in Florida and Texas. 

The coverage gap is to a certain extent notional, in that it's based on an estimate of income in the coming year. Future income for low earners -- often subject to capricious scheduling, seasonal variations, self-employed income, tips, and frequent job changes --  is notoriously difficult to estimate.  Most people who fall in the coverage gap have no idea why they were denied help (or simply why quoted premiums are so high) -- the application form does not highlight the minimum coverage threshold.  As with tax filing, a common reflex when filling out the application  -- actually reinforced by the application form -- is to minimize income. That reflex may render an unwitting applicant with an income near 100% FPL ineligible for coverage.

In a rule update published on April 30 of this year, CMS announced that in accordance with a court order it would no longer require income documentation if an applicant estimated an income over the 100% FPL threshold while CMS's "trusted sources" indicated an income below it. If a person does estimate an income over 100% FPL, and income for the year ultimately lands below the threshold, there is no clawback. For a fair number of people with income close to 100% FPL ($12,880 annually in 2021), the minimum income requirement is effectively voluntary. Some enrollment assisters and brokers are resourceful in helping clients produce good faith estimates that will qualify them for coverage. 

CMS could help this process along simply by signposting the minimum required income on the application and in the "see plans and prices" preview tool, following the lead of HealthSherpa, the dominant commercial enhanced direct enrollment platform, which processes almost a quarter of enrollments in HealthCare.gov states. Under Biden, CMS has bulked up funding for enrollment assistance, and CMS's training for assisters could emphasize that they should help clients in coverage gap states consider every source of income and every factor in income variation when making their estimates. Moreover, CMS's recently enacted rule enabling year-round enrollment for people with incomes up to 150% FPL can be leveraged to help people out of the coverage gap any time they experience an income boost (as well as helping higher income people obtain coverage when their income drops).

4. Fix the family glitch. The ACA denies subsidy eligibility in the marketplace to anyone whose employer offers "affordable" ACA-compliant coverage -- that is, minimum essential benefits at a cost of less than 9.5% of income (approximately; the threshold varies annually, according to a complex and superfluous formula). The IRS, in its sovereign wisdom, decreed in a rule finalized in 2012 that the 9.5% standard applied only to single-person coverage. Thus, if an employer offers family coverage that costs a given employee, say, 15% or 20% of income, but individual coverage is available at below 9.5% of income, the family is ineligible for marketplace subsidies.  The Kaiser Family Foundation estimates that 5.1 million people are in the glitch, more than half of them children. Top progressive health law scholars including Timothy Jost have opined that the IRS's reading of the statute was flawed, and that any administration has the authority to make the 9.5% affordability standard applicable to family coverage. The Biden administration should fix the family glitch forthwith.

We are about to enter the second year in which the Affordable Care Act, coverage gap aside, has some credible claim to fulfill the promise inherent in its name -- providing affordable health insurance to all citizens and legally present noncitizens. Administrative action can't substitute for the subsidy boosts that may now prove ephemeral (and are in fact at risk even in the BBB bill that passed the house, which only funded them through 2025). But the administration can still do much to make coverage more affordable and available than it was prior to March 2021.  All of these measures, moreover (and all of those put forth by Isasi and Dorn), would further improve coverage and availability if the coverage measures in the BBB do become law. 

For more in-depth treatment:
Maximizing silver loading
Changing the AV formula
Helping people over the coverage gap
Fixing the family glitch

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