Monday, January 02, 2023

Looking Backward: 2023--2014 in the ACA marketplace

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This morning I happened on a January 2014 post of mine that engaged the question of whether the ACA marketplace structure might foster productive state experimentation over time. Austin Frakt engaged the question and usefully compressed my forecast as follows:

First a ground pre-prepped for de facto compromise has been laid — in the state exchanges. […] [S]tarting in 2017, states can apply for waivers by submitting alternative plans that purport to meet the ACA’s coverage benchmarks (in 2011, Obama pronounced himself willing to move the waiver start date to 2014 []).  On the Medicaid front, the Obama administration has shown itself willing to accept a wide range [of] conservative experiment[s]; the same will doubtless prove true for the exchanges if any GOP-run states want to try.  The ACA might be viewed as a multi-state laboratory waiting to happen — with no need for knock-down-drag-out fights in Congress. Governors willing to deal in good faith can work quietly with HHS — or hand-in-glove, if a Republican becomes president in 2017.

It took a failed Republican repeal attempt and years of regulatory sabotage from the Trump administration to get us there (along with the 2017 start date for state "innovation waivers"), but we're at a point where state experiments are proliferating — in at least one blood-red state as well as in blue. Consider:

  • In 2022 the Texas legislature, quietly shedding twelve years of rooted hostility to the ACA and the state insurance department's refusal to actively oversee the state ACA marketplace, unanimously passed a law directing the state insurance department to mandate strict silver loading (see note 1 below), ensuring that gold plans would be priced well below the silver benchmark plan.  While implicitly accepting the permanence of the ACA marketplace, the Texas legislature can take solace in scoring a major boost to premium subsidies charged entirely to the federal government. Texas follows Pennsylvania, Maryland, Virginia and New Mexico in enforcing strict silver loading to some degree, and New Mexico alone in mandating that gold plans be priced significantly below silver

  • Since 2021, six blue states -- Colorado, Connecticut, Maryland, New Jersey,  New Mexico, and Washington -- have created state-funded "wraparound subsidies" reducing premiums and/or out-of-pocket costs, either for all subsidy-eligible enrollees with incomes as high as 600% FPL (in New Jersey), or for targeted low-income groups.** These states followed the lead of Massachusetts and Vermont, which instituted wraparound subsidies in time for the ACA marketplace's launch in 2014. (Louise Norris provides links to summaries of each state's subsidy program, along with the Basic Health Programs implemented for enrollees with incomes up to 200% FPL in New York and Minnesota, at FAQ #7 here.)

  • Three states -- Washington, Colorado, and Nevada -- are at various stages of implementing a public option, or quasi-public option, in their ACA marketplaces.  While administered by insurers, the public option plans will (or, in Washington, already do) use a state-standardized benefit design and be subject to cost controls -- either caps on provider payment rates (Washington and Colorado) or requirements to reduce premiums over a period of years (Nevada). 

  • As of 2022, nine states had implemented detailed standardized plan designs, and, the federal exchange serving 33 states, re-introduced standardized plans in 2023. While all states except California allow nonstandard plans to compete against the standardized (and in most states, to swamp them at present), six states now limit the number of non-standardized plans that can compete with the standardized ones. In its 2024 Notice of Benefit and Payment Parameters, moreover, CMS has proposed fairly strict limits on the number of non-standardized plans an insurer may offer on In Washington, reforms limiting non-standardized plans, and potentially eliminating them in 2025, are effectively converging with the buildout of the public option. In 2023, Massachusetts will likely pass legislation extending eligibility for its completely standardized ConnectorCare plans, which have no deductibles and low out-of-pocket maximums, to enrollees with income up to 500% FPL, up from the 300% FPL in effect since 2014 (and, in its pre-ACA form, since 2006).

  • In Open Enrollment for 2019, 39 states relied on, the federal exchange. In 2022, just 33 states used, as Nevada launched a new state-based exchange for 2020, New Jersey and Pennsylvania followed suit in advance of OEP 2021, and New Mexico, Maine and Kentucky deployed SBEs for OEP 2022 (Kentucky rebuilt and redeployed its SBE, which Republican Governor Matt Bevin had decommissioned in 2017.) SBEs give states the ability to devise and deploy state-based subsidies, provide state-based funding via insurer user fees for enrollment outreach and marketing, and generally protect the state from the kind of marketplace sabotage weathered during the Trump administration, e.g., the gutting of outreach and marketing in states. Several SBEs, however, are less user-friendly and present plan options and features less clearly than

ACA innovation, brought to you by….Trump and a Republican Congress

One irony behind most of these initiatives is that many (maybe most) were enabled by Republican sabotage, or at least hostility to original ACA provisions.

Most famously, when Trump in October 2017 cut off direct federal reimbursement of insurers for the Cost Sharing Reduction (CSR) subsidies they are obligated by ACA statute to provide to low income enrollees who choose silver plans (but for which a Republican Congress had never appropriated funds), insurers had to price the value of CSR into plans, and almost all states allowed or encouraged them to price CSR into silver plans only. That change launched the era of “silver loading,” as priced-in CSR inflated premiums for silver plans and created discounts in bronze and gold plans. While forecasters of the long-anticipated effects of cutting off direct CSR reimbursement (first HHS, then the Urban Institute, and finally the Congressional Budget Office) expected the pricing-in of CSR to result in gold plans being consistently priced below silver, that didn’t happen on its own, as insurers tend to underprice silver plans, which are still the dominant choice for marketplace enrollees. The prevalence of weak and inconsistent silver loading is what has induced at least six states to require insurers to more fully price in the value of CSR, creating stronger and more consistent discounts in gold plans.

Democratic governors and legislator have also performed a bit of judo on Republicans’ neutering or repeal of two ACA funding provisions: the individual mandate, which required individuals who were eligible for affordable insurance to obtain it or pay a penalty, which Republicans reduced to zero effective in 2018; and the ACA’s tax on insurers, which was repealed in December 2019. In both cases several states enacted state substitute taxes that they used to fund wraparound subsidies or other initiatives. Five states — Massachusetts, D.C., Rhode Island, New Jersey and Vermont — implemented state individual mandates, and four states — Colorado, Delaware, Maryland and New Jersey — implemented taxes on insurers.

It should be said, too, that current state innovations are building on the massive boosts to ACA premium subsidies (and subsidy-eligibility) provided through 2022 by the American Rescue Plan Act in March 2021, and extended through 2025 by the Inflation Reduction Act passed in August 2022. ARPA has given states the luxury of nearly zeroing out premiums and/or out-of-pocket costs for low-income enrollees at relatively low cost to the state. Two states, Colorado and Washington, are extending state-based subsidies to undocumented immigrants.

A second irony: If the ACA’s creators had from the beginning instituted adequate subsidies, standardized plans, and a public option with effective cost controls, instead of settling for what Jonathan Cohn calls (in The Ten Year War: Obamacare and the Unfinished Crusade for Universal Coverage) second-, third-, and fourth-best solutions,” far less experimentation would be required of states. But given the conditions under which American legislatures must operate, states and a Democratic administration tacking in the direction of those reforms is heartening.

Postscript: state innovation in the Trump years

It should be acknowledged that innovation did occur in the Trump years as well, positive as well as negative. On the plus side, in the wake of steep premium increases in 2017, with further increases telegraphed for 2018, the Trump administration encouraged states to apply for federal funding, via ACA innovation waivers, for state-based reinsurance programs that would provide some relief to unsubsidized enrollees. To date, 15 states have implemented such programs. The boost to ACA premium subsidies and subsidy eligibility provided by the American Rescue Plan Act in March 2021, which removed the income cap on subsidy eligibility, sharply reduced the number of individual market enrollees (or prospective enrollees) exposed to unsubsidized premiums, but perhaps 3-odd million enrollees (about 10% of on-exchange enrollees, and an unknown number of off-exchange) are currently unsubsidized.

On the downside, the Trump administration was ideologically committed to deregulating the individual market for health insurance — encouraging a proliferation of lightly regulated, medically underwritten plans (so-called short-term, limited duration plans, or STLDs), association health plans, healthcare sharing ministries, and other products providing limited and unpredictable coverage for medical bills. The zeroing-out of the individual mandate penalty by the Republican Congress in 2017 enabled the proliferation of these alternatives to ACA-compliant plans. CMS administrator Seema Verma encouraged states to seek ACA innovation waivers (which she attempted to redefine) to enable federal subsidies to be applied to such products.

Two states took CMS’s deregulatory approach to heart. In January 2018 (prior to Verma’s waiver guidance), in compliance with an executive order by Idaho Governor Bruce Otter, the Idaho Department of Insurance issued a bulletin setting guidelines for insurers to offer state-based, ACA-noncompliant, medically underwritten plans with annual benefits alongside the state’s ACA-compliant market. This direct violation of the ACA statute was too much even for Trump’s CMS, which disallowed the plan, while encouraging the state to refashion the offering as a set of STLD plans.

Then, in 2020, Verma’s CMS approved an innovation waiver from Georgia allowing the state to stop offering plans on — or on any government exchange, instead offering plans only through brokers and via direct sale by insurers. As brokers can sell STLD plans as well as ACA-compliant plans, and generally receive far more generous fees for STLD plans, this decentralized may have led to many enrollees enrolling in deregulated plans — and so forgoing ACA premium subsidies. But the Biden administration suspended the approval this year, and Georgia’s marketplace is still on for OEP 2023.

A decentralized marketplace in Georgia would have been enabled in part by a CMS program, begun in the Obama administration and enthusiastically developed during the Trump years, with an ambiguous legacy: the development of commercial Direct Enrollment (DE) platforms. DE platforms are websites hosted by online brokers or insurers that, in their original form, collected income and eligibility data and sent it to the federal exchange, which determine subsidy eligibility and send the application back to the DE for completion. During Open Enrollment for 2019, CMS began approving brokers for Enhanced Direct Enrollment, EDE, which enabled commercial brokers to complete the whole transaction. More than 70 DE platforms are currently approved by CMS.

DE platforms furthered the Trump administration’s decentralizing goals. Brokerages and individual brokers can private-label DE platforms, and the don’t have to display plans from insurers they don’t represent. Brokers can also use websites that include a DE platform to steer prospective clients away from ACA-compliant plans, though they can’t display those plans alongside ACA-compliant plans.

At the same time, the first and still-dominant DE platform, HealthSherpa, is the fastest and most user-friendly ACA enrollment platform in existence. It’s now used by thousands of brokers, and its share of national enrollment keeps growing, apparently reaching more than a third of all enrollment in 33 states in OEP 2023 (DE works only through the federal exchange, not through SBEs). HealthSherpa is the great stealth story of the ACA marketplace.

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* Silver loading, the pricing of the value of CSR directly into silver plans only (since CSR is available only with silver plans), began in 2018, after Trump in October 2017 cut off the direct reimbursement of insurers for CSR, which was required by the ACA statute but never funded by a Republican Congress (or by a Democratic Congress, after the benefits of silver loading became apparent). By inflating silver premiums, silver loading also inflates subsidies and creates discounts in bronze and sometimes in gold plans.

** Strict silver loading boosts premium subsidies wholly at the expense of the federal government; wraparound subsidies are a state expense. One state, New Mexico, has implemented both strict silver loading (gold plans cheaper than silver, mainly benefitting enrollees with income over 200% FPL) and state subsidies that reduce out-of-pocket costs in silver plans sold to those with income below 200% FPL, newly dubbed "turquoise" to sidestep metal level confusion.  New Mexico has thus ensured that plans with minimal out-of-pocket costs are available for free or very low premium at incomes up to 200% FPL, and that gold plans are available at below-benchmark cost at incomes above 200% FPL.

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