Is "free" a magic word in the ACA marketplace?

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Healthcare scholars David M. Anderson and Coleman Drake have published a study that analyzes the impact of free bronze plans, which became available to millions of prospective ACA marketplace plans in 2018, on enrollment.

Ubiquitous free bronze is one result of "silver loading," the byproduct of Trump's October 2017 cutoff of direct federal reimbursement to insurers for the Cost Sharing Reduction (CSR) subsidies they are required to provide to low income marketplace enrollees who select silver plans. Faced with the cutoff at the brink of open enrollment for 2018, most state insurance departments allowed or encouraged insurers to price CSR into silver premiums only. 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. As a result of silver loading, $0-premium bronze plans available to millions.

Perhaps the most striking finding in Anderson and Drake's paper is the sheer ubiquity of free bronze plans, particularly for enrollees over age 45 (since premiums rise with age, and the benchmark plan costs subsidized enrollees a fixed percentage of income regardless of age, older enrollees have larger subsidies to cover plans that cost less than the benchmark). The authors divined the availability of free bronze by matching enrollment data, which CMS breaks out by county, income, age and metal level in the 38 states that use HealthCare.gov, with pricing data, which CMS also provides. 

Free bronze, they found,was available in 2019 to almost every marketplace enrollee with an income below 150% of the Federal Poverty Level (FPL) -- that is, to about 3 million enrollees in HealthCare.gov states, more than a third of all enrollees. It was available to most enrollees at 150-200% FPL, and to a large majority of enrollees over age 45 in the 200-250% FPL income bracket.

Blue waivers! Synthetic silver loading, anyone?

First the bad news: Seema Verma's CMS has invited states to undermine guaranteed issue and comprehensive coverage in their ACA marketplaces, floating four "waiver concepts" that converge on one idea: subsidizing medically underwritten, lightly regulated insurance.

Now the good news: CMS has invited states to be creative. Blue states might think about taking up the offer to redesign the ACA marketplace subsidy structure. Those states, however, will want to stay within the statutory "guardrails" for ACA Section 1332 innovation waivers that recent Trump administration guidance seeks to, um, wave away: provide coverage as comprehensive and affordable to as many people as does the existing marketplace design, without increasing the federal deficit.

The financial constraint -- deliver better benefits without spending more money -- has rendered Section 1332 something of a Catch-22 for states aiming to maintain a private market in which plans offer comprehensive coverage without regard to applicants' medical history.

But Trump's October 2017 cutoff of direct  reimbursement of insurers for Cost Sharing Reduction (CSR) and the resulting "silver loading" -- pricing CSR into silver plans only, since CSR is available only with silver plans -- has created a windfall that might be leveraged if CMS plays by Section 1332 rules. (See note below if you're unfamiliar with how silver loading works.)

Silver loading has inflated subsidies as well as premiums and created discounts in bronze and gold plans benefiting some two million enrollees, boosting enrollment and partially offsetting other forms of Trump administration sabotage. CBO estimates the cost to the Treasury at $194 billion over ten years. But the benefits have been haphazard and inefficiently distributed. Via waiver, perhaps a state could make better use of its share.

Free bronze or CSR-boosted silver? The choice in 5 top marketplace counties

Trump's cutoff of federal reimbursement to insurers for Cost Sharing Reduction (CSR) subsidies has led to two pricing anomalies in the ACA marketplace that have rightly gotten a lot of attention: gold plans that are cheaper than silver plans (or close to it) in some regions, and bronze plans that are free for large swaths of the subsidy-eligible population.

The gold and bronze discounts* available in many regions of the country are an unmixed blessing for subsidized buyers with incomes above 200% of the Federal Poverty Level (FPL), who are eligible either for no CSR or very weak CSR. The blessing is more ambiguous for buyers with incomes below 200% FPL, however, because for them CSR, which is available only with silver plans, remains a major secondary subsidy. For these buyers, silver plans are priced as if they have an actuarial value of 70% (that is, are designed to cover 70% of the average user's medical costs) but, enhanced by CSR, have AVs of 94% (for buyers up to 150% FPL)  or 87% (for those in the 150-200% FPL range). That translates to an average deductible of $255 (for 94% AV) or $809 (for 87% AV), compared to over $6,000 for bronze plans.

That bargain remains in place. But silver plans can be quite expensive for low income enrollees. The premium for a benchmark silver plan ranges from 2% of income for those in the 100-138% FPL income bracket to 6.3% for enrollees at 200% FPL. The benchmark premium at 200% FPL comes to $127 per month in 2018.

Will the outsized bronze plan discounts available in many places this year tempt a lot CSR-eligible buyers into bronze plans?**  In 2017, over 85% of enrollees with incomes up to 200% FPL selected silver plans and accessed CSR in the 38 states that use the HealthCare.gov federal exchange.

To gauge whether discount bronze is likely to take a big bite out of CSR takeup this year, let's look at the choices facing CSR-eligible enrollees in counties with the most marketplace enrollees. In 2017, these were

Miami-Dade, FL              387,848
Los Angeles, CA             380,520
Broward, FL                    240,984
Harris, TX (Houston)      240,064
Cook, IL (Chicago)         144,418