The increases to premium subsidies in the ACA marketplace provided through 2022 by the American Rescue Plan Act (ARPA) have been a policy success, helping to boost marketplace enrollment by 21% this year. During Democrats' long, weary negotiations over the Build Back Better bill in the fall, extension of those subsidies (first permanently, then, foolishly, for just 3 years) was taken as a given. Even when BBB negotiation collapsed, failure to extend the subsidies seemed unthinkable...until it didn't.
By May, it began to seem that Joe Manchin might not allow any Democratic priorities to pass via a reconciliation (bypassing the filibuster, and requiring all Senate Democrats to be on board). More recently, there's been a pulse -- apparently serious negotiations for a stripped-down bill possibly including climate investments, repeal of Republican tax cuts, empowering Medicare to negotiate prescription drug costs, and, maybe maybe, extension of the ARPA subsidy boosts for marketplace coverage.
Most recently, Manchin has made vaguely sympathetic but equivocal noises about extending the subsidy boosts, which are not a priority for him (the ACA Medicaid expansion insures about ten times as many West Virginians as the ACA private plan marketplace). And as Politico's Adam Cancryn outlines, his maunderings have left Democrats trying to squeeze them in with a dilemma.
Manchin hath decreed that a) any programs included in the reconciliation package be permanent, rather than sunsetting after a fixed number of years, and b) half the money raised through tax increases go to deficit reduction, leaving about $500 billion over ten years for all spending priorities. CBO estimated the 10-year cost of permanent extension of the ARPA subsidies at $210 billion. Prescription drug pricing reforms are projected to raise somewhere over $100 billion, depending on how they're structured. The three-year cost of ARPA subsidy extension, per CBO, is $74 billion. But, per Manchin rules...no temporary programs!
Given this Catch-22, it may be worth thinking about ever-present but studiously ignored (rightly, on the extra-Manchin merits) policy option: Fund the ARPA-level subsidies by funding the marketplace's Cost Sharing Reduction (CSR) subsidies in the original, statutory way, directly reimbursing insurers for their CSR costs. CSR reduces out-of-pocket costs for low income enrollees (a slight majority of enrollees) who select silver plans.
Those direct CSR reimbursements are stipulated by the ACA statute, but funding was left to Congress, and the Republican Congress (natch) refused. Obama's HHS found the money in couch cushions through 2016; a court decision deemed the funding illegal, but that ruling was stayed pending appeal. Trump cut the direct payments off in October 2017. The move was long anticipated, and regulators in almost all states reacted by allowing or encouraging insurers to price the value of CSR directly into silver plans, since CSR is available only with silver plans. Since ACA subsidy premiums are structured so that enrollees pay a fixed (sliding) percentage of income for the benchmark silver plan, this pricing practice inflated subsidies.
Restoring direct payment to insurers for the cost of providing CSR would end silver loading -- the pricing of the value of CSR directly into silver plan premiums, which has created sometimes-dramatic discounts in bronze and gold plans. Thus it would harm some enrollees. Re-funding CSR in the old way while extending the ARPA subsidy schedule would trade a lesser subsidy boost for a greater one.
Silver loading made free bronze plans widely available at incomes up to 200% FPL* and often beyond (the discounts increase with age, as premium subsidies rise to cover premiums that rise with age, and therefore price spreads between the benchmark silver plan and cheaper plans increase as well). In some regions and whole states, gold plans are available with premiums below that of the benchmark silver plan. That's because most enrollees in silver plans have incomes below 200% FPL, and below that threshold CSR raises the value of a silver plan to roughly platinum levels. Thus, silver plans have higher actuarial values on average than gold plans. Five states, with behemoth Texas to follow in 2023, have effectively required insurers to price gold plans near or below the price of silver plans. More states probably will (and should!) follow suit, if direct CSR funding is not reinstated.
In a market that maintains both the ARPA subsidy boosts and strict silver loading, enrollees with incomes below 200% FPL can get CSR-enhanced, high-AV silver plans for free or cheaply (topping out at 2% of income for benchmark silver at 200% FPL), and enrollees with incomes over 200% FPL can get gold plans (80% AV) at or below a premium deemed affordable by ACA standards, i.e., below the cost of benchmark silver (between zero and 8.5% of income).
Silver loading is expensive. In August 2017 the Congressional Budget Office, anticipating Trump's cutoff of direct CSR reimbursement, forecast a 10-year cost of $194 million. In October 2021, CBO estimated the cost of permanently extending the ARPA subsidies (as the Sept. 15 iteration of the Build Back Better bill would have done) at $209.5 billion.
Those estimates are four years apart, and silver loading has not worked out quite as CBO (following prior analysis by the Urban Institute and HHS) anticipated, in that gold plans have not been consistently priced below silver. Silver plans remain broadly underpriced relative to bronze and gold (given the average AV obtained by silver plan enrollees, a large majority of whom obtain the strong CSR available below 200% FPL). Analysts including Stan Dorn of Families USA attribute the misalignment in part to CMS's risk adjustment formula, which allegedly favors silver plans. The average benchmark silver plan premium in 2022 is 9% below the average in 2018, when silver loading began, rendering the premise that silver loading would increase premium subsidies by an average of almost $20 billion per year over ten years somewhat counterintuitive. Nonetheless, Brookings' Matt Fiedler, comparing metal level pricing since 2017 to the pre-2018 trend, estimates that through 2021, silver loading had raised silver plan premiums (and so, federal subsidy costs) by 25%.
Those complexities and uncertainties notwithstanding, it's fair to say that the savings from ending silver loading (funding CSR) are in the ballpark for offsetting the 10-year cost of making the ARPA subsidies permanent. What about the merits?
The Build Back Better bills would have "paid for" ARPA subsidy extension by other means. But the last iteration, constrained by the perceived demands of Manchin and Sinema, would have only extended the subsidies through 2025, at a cost estimated by CBO at $73.9 billion. Again, Manchin reportedly demanded that BBB's myriad of programs funded only short-term be replaced with a smaller group of priorities funded permanently. If ARPA subsidies make the cut, permanently funded, all good.
If, however, a choice boils down to funding the enhanced subsidies for three years (or two, or four..), or funding CSR reimbursement and making the ARPA subsidies permanent, I'd have to say that the permanent boost would be worth the price of giving up silver loading.
I have what you might call an emotional investment in silver loading, developed through anticipating it, describing it at the emergency outset, tracking its effects on enrollment, advocating for its intensification, worrying about its pre-ARPA side effects, and tracking the results of state initiatives. Paired with ARPA, and if maximized by regulation, it guarantees that everyone eligible for marketplace coverage has access to at least one health plan with an actuarial value of at least 80% (or, at lower incomes, 87% or 94%) at a cost at or below the benchmark premium. Making 80% AV coverage affordable at incomes over 200% FPL completes the ACA's "affordable care" equation.
That said, the ARPA subsidy boosts provided a more sweeping and fundamental reboot of the marketplace than silver loading did. Silver loading probably boosted marketplace enrollment by about 5%; the ARPA subsidies, by 21%. Moreover, the value of large increase in free bronze plans at low incomes generated by silver loading has been largely eclipsed by ARPA's major boost to the affordability of benchmark silver enhanced by strong CSR (free to 150% FPL, 2% of income at 200% FPL) at low incomes. Silver loading does, however, create strong value for enrollees with incomes over 200% FPL, especially in markets where gold plans are available below benchmark.
A caveat: if the savings from ending silver loading really do roughly offset the cost of extending the ARPA subsidies, the two sources of increased subsidies must in the broadest sense be of roughly equal value. In a macro sense, yes, but the benefits are distributed differently.
With ARPA in place, rendering high-CSR silver coverage free-to-highly-affordable at incomes up to 200% FPL, silver loading almost exclusively benefits enrollees with incomes above 200% FPL (currently $25,760 annually for an individual, $34,840 for a couple, $53,000 for a family of four). Properly enacted, it should make gold coverage "affordable" by ACA standards, i.e., available at a cost below that of benchmark silver. It also makes bronze coverage widely available for free or close to free at incomes well up the FPL scale -- even at incomes over 400% FPL for enrollees in their sixties. That's because as premiums and subsidies rise with age, so does the spread between benchmark silver and cheaper plans.
ARPA, by contrast. makes coverage with low out-of-pocket costs (by American standards) radically more affordable for enrollees with incomes below 200% FPL -- while also ending the often-total unaffordability of coverage for those with incomes over 400% FPL, who were unsubsidized before ARPA. At incomes below 200% FPL, silver plans have a higher actuarial value than gold, mostly neutralizing a major benefit created by silver loading.
Manchin recently told Business Insider that the subsidy boosts should be "means-tested" -- which they already are. He appears to have meant -- assuming that he understands the current subsidy structure --that they should not extend to higher income enrollees:
he suggested that an extension of the program [the ARPA subsidy boosts] should be directed towards aiding lower-earning families.
"The main thing here is the means-testing," he said in a brief interview on Wednesday evening. "We should be helping the people who really need it the most and are really having the hardest time."
With that in mind, it's worth noting that silver loading is of limited value to marketplace enrollees with incomes below 200% FPL -- whereas the ARPA subsidies make low-OOP coverage free to incomes up to 150% FPL and costing no more than 2% of income at incomes up to 200% FPL. That boost at the low end of the income scale should be worth something to West Virginia the second-poorest state in the nation. During the pandemic, thanks in large part to a moratorium on Medicaid disenrollments, the number of West Virginia Medicaid enrollees rendered eligible by ACA expansion criteria (adults with income up to 138% FPL) increased by more than 50,000, or 32%, from February 2020 to September 2021. Total Medicaid enrollment in the state increased by 94,000 (18%) in the same period. When the public health emergency ends and disenrollments recommence, a lot of the newly disenrolled should end up in marketplace coverage. That's a lot likelier under the ARPA subsidy schedule -- or at least the lower end of it.
At the other end of the spectrum, if the pre-ARPA cap on subsidy eligibility is restored, coverage will be particularly unaffordable in West Virginia for enrollees with income over 400% FPL. As I noted in my last post:
By Families USA's estimate, ending the ARPA subsidy expansion would cost the average West Virginia marketplace enrollee $1,536 per year -- highest in the nation. Restoration of the income cap on subsidies (which in 2022 would have been $51,520 for an individual and $69,680 for a couple) would render coverage unaffordable for many people above the threshold.
At the same time, only about 3,300 marketplace enrollees in West Virginia have incomes over 400% FPL, and only 2,100 have incomes over 500% FPL or unknown. A raised cap on subsidy eligibility might mollify Manchin -- to the extent he pays attention to these details. Charles Gaba discusses the possibility of a raised cap here -- along with a further update on Manchin maunderings that make it hard not to suspect he's just bullshitting on this issue.
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* Free bronze plans at low incomes are something of a mixed blessing, as bronze plan deductibles average about $7,000, while silver plan deductibles average less than $200 at incomes up to 150% FPL and around $800 at incomes in the 150-200% FPL range. In the silver loading era, silver plan selection at incomes up to 200% FPL dropped from 87% in 2017 to 78% in 2021. The ARPA subsidies appear to have reversed that slide, at least in the emergency Special Enrollment Period that ran from Feb. 15 to Aug. 15 in 2021, with ARPA coming into effect in March and ARPA premiums posting in April.
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