THERE WILL BE MATH: The Silver Switcharoo: How to make Trump's CSR sabotage backfire.

UPDATE 9/27/17: It now looks extremely likely that CSR reimbursement payments will not be guaranteed for 2018 (they may or may not be paid, mind you, but it's unlikely that they'll be legislatively appropriated, which amounts to the same thing as far as most insurance carriers are concerned). With this in mind, I'm re-upping this rather wonky/in-the-weeds tutorial about the #SilverSwitcharoo, since it looks like at least 6 states (California, Connecticut, Florida, Idaho, North Carolina and Pennsylvania) are likely to end up using it this fall.

UPDATE 10/12/17: Welp. Sure enough, Donald Trump is indeed officially planning on pulling the plug on CSR reimbursement payments. Several healthcare wonks, including myself, have been tracking how different states are handling the CSR load issue; so far it looks like 22 are "Silver Loading" and 10 are going "full Silver Switcharoo". This may change over the next week or so, however.

The states we know (or at least are pretty certain) are Silver Switcharooing are: California, Connecticut, Florida, Georgia*, Hawaii, Idaho, Minnesota, Nevada, South Carolina and Washington State.

*(At least one carrier in Georgia)

(Special thanks to folks like Josh Schultz, David Anderson, Andrew Sprung, Amy Lotven, Wesley Sanders and others for helping me make heads or tails out of the CSR brouhaha)

NOTE 5:30pm: See update at the bottom of page.

  • Mark Farrah Associates estimates the total individual market was roughly 17.6 million people as of early 2017.
  • Of that, I estimate that roughly 1.6 million are probably still enrolled in "grandfathered" or "transitional" policies, which are not ACA compliant and are part of a completely separate risk pool.
  • That leaves around 16,000,000 people enrolled in ACA-compliant policies at the moment.
  • As of March, around 10.7 million were enrolled in ACA exchange policies, the other 5.3 million or so in off-exchange policies.
  • Roughly 9.1 million of the exchange enrollees receive APTC subsidies; around 6.1 million also receive CSR subsidies.
  • That leaves roughly 3 million receiving APTC but not CSR and 6.9 million not receiving either (1.6 million on exchange, 5.3 million off exchange)

Based on these ratios, here's a scenario for you:

Let's suppose you run an insurance company currently offering a Bronze, Silver, Gold and Platinum individual market plan both on and off the ACA exchange. You currently (2017) have a total individual market enrollment of exactly 16,000 people, broken out as follows (the on exchange breakout is based on actual OE4 enrollment data; the off exchange breakout is unknown, but Andrew Sprung thinks it's roughly a 40/40/20 Bronze/Silver/Gold split, which sounds about right to me).

ON EXCHANGE: 10,700 total

  • Bronze: 2,500
  • Silver (receiving CSR help): 6,100
  • Silver: (no CSR): 1,500
  • Gold: 500
  • Platinum: 100

OFF EXCHANGE: 5,300 total

  • Bronze: 2,100
  • Silver (no CSR): 2,100
  • Gold: 1,000
  • Platinum: 100

Let's further say that the average unsubsidized premiums and deductibles for each of the above are as follows (regardless of on/off exchange & w/out accounting for CSRs):

  • Bronze: $350/mo premium, $6,000 deductible
  • Silver: $410/mo premium, $3,500 deductible
  • Gold: $520/mo premium, $1,200 deductible
  • Platinum: $620/mo premium, $400 deductible

(I'm basing these on the average 2017 premiums/deductibles according to HealthPocket...I rounded them off to even numbers)

Next, let's assume that you'd normally be increasing all of your policy premiums by around 10% apiece next year based on actual medical inflation and the reinstatement of the ACA carrier tax, while keeping the deductibles the same. That would mean the following 2018 premiums:

  • Bronze: $390/mo
  • Silver: $450/mo
  • Gold: $570/mo
  • Platinum: $680/mo

(Note: I'm not even going to get into the other types of sabotage Trump/Price/the GOP are attempting such as not enforcing the mandate penalty, etc)

Finally, let's say that assuming all 16,000 people were to renew their existing policies for 2018, the average CSR assistance provided to the 6,100 receiving it would be $1,000 even for all of 2018. That's a total of $6.1 million in anticipated CSR payments which the carriers have to contend with in the event that CSR reimbursements are cut off.

OK, got all that?

Now you have to consider the other looming possibility: CSR payments being cut off completely for all of 2018. You're still legally required to pay out the CSR assistance for qualifying on-exchange Silver enrollees, but you won't be reimbursed by the Trump Administration for your troubles. You have five options:

  • 1. Drop out of the on-exchange market so you're not at risk of having any CSR enrollees; stick around the off-exchange market.
  • 2. Drop out of the entire individual market, both on and off exchange.
  • 3. Preemptively cover your anticipated 2018 CSR losses by spreading them out across all plans on and off exchange.
  • 4. Preemptively cover your anticipated 2018 CSR losses by loading them onto Silver plans only both on and off exchange.
  • 5. Preemptively cover your anticipated 2018 CSR losses by loading them onto on-exchange Silver plans only.

Options number 1 and 2 are the biggest worry for the 2018 enrollment period...some carriers have already decided that the indy market is too much of a mess and have effecitvely thrown their hands in the air, pulled a Cartman from South Park and said "screw you guys, I'm going home!"

Option number 3 (spreading the CSR costs across all plans equally) is what most articles about the CSR crisis have assumed (including this one by myself). If #3 were to happen, then:

  • Around 9,100 enrollees wouldn't be hit with it because their APTC assistance would rise to cover the extra cost...
  • ...but the other 6,900 people (1,600 on exchange, all 5,300 off exchange) would be hit with the full increase: Around $381/each on average, or an extra $32/month.

That's fully 38% of the individual market getting hit with an extra 5-9% rate hike purely because Donald Trump and the GOP continue to be jackasses over appropriating the CSR program.

Option number 4 (loading the CSR costs across just Silver plans) seems the most logical/"reasonable" since Silver plans are the only ones which qualify for CSR help anyway. That's around 9,700 enrollees (7,600 on exchange, 2,100 off exchange).

  • Again, the 6,500 subsidized exchange Silver enrollees shouldn't be hurt at all, nor would the other 2,600 subsidized enrollees...
  • ...but the other 3,200 unsubsidized Silver enrollees (1,100 on exchange, 2,100 off exchange) would be hit for $629/each, or $52/month extra apiece. Ouch.

Far fewer people would be hurt this way...but they'd be hurt by far more: 20% of the individual market would be hit with an extra 13% rate hike, purely to salve Trump's ego.

This, too, would be unacceptable.

HOWEVER...there's also option number 5. This is the goofy workaround that Covered California appears to have already decided upon, and which other insurance carriers and state regulators appear to be moving towards. Here's how that would work:

  • The ACA says that if a carrier offers a policy on the exchange, they also have to offer it off the exchange at the same price.
  • However, a carrier can offer a different policy off-exchange only.
  • Therefore, the carrier could create a second, "new" Silver policy which is very close to the same as the on exchange version...but only offer the "new" Silver policy off exchange.
  • The full $6.1 million in anticpated CSR losses would now be spread across the 7,600 on-exchange Silver enrollees, or around $803/ea or $67/mo extra

Assuming the state regulators signed off on the "Silver Switcharoo" plan, here's what rates would look like for 2018:

ON EXCHANGE (full price):

  • Bronze: $390/mo
  • Silver (Plan A): $517/mo
  • Gold: $570/mo
  • Platinum: $680/mo

OFF EXCHANGE (full price):

  • Bronze: $390/mo
  • Silver (Plan A): $517/mo
  • Silver (Plan B): $450/mo
  • Gold: $570/mo
  • Platinum: $680/mo

At first, this sounds even worse: Fewer people screwed, but they'd be screwed by even more, right? Also, why would anyone off-exchange buy Silver Plan A when they could get virtually-identical Plan B for 13% less?

The answer to the second question is simple: They wouldn't. In fact, the insurance carriers would probably not promote Silver Plan A to their off-exchange market at would be listed in their official product offerings, but completely ignored in all marketing materials and so forth; Silver A would become a phantom plan for the off-exchange market. They'd actively promote Silver Plan B off exchange, however.

That leaves the 7,600 on-exchange Silver plan enrollees.

The 6,100 CSR recipients would still receive CSR assistance and would see their APTC assistance increase by another $67/month, so their rates likely wouldn't go up at all, or only nominally.

The 400 on-exchange Silver plan enrollees who receive APTC but not CSR would also see their APTC increase by $67/mo, and again, wouldn't notice much of a change in what they actually pay.

Finally, there's the 1,100 on-exchange Silver plan enrollees who don't receive any subsidies. They would see their rates increase by $67/month...but there's a simple solution for them:

Drop their on-exchange Silver Plan A and switch the virtually-identical OFF-exchange Silver Plan B, which would be priced $67/month lower.

Assuming those 1,100 people did exactly that, along with the 2,100 off-exchange Silver enrollees switching to "Plan B" and the other 12,800 people were to renew their exact same plan, then theoretically what would happen is this:

  • After tax credits were added, all 18,000 people would end up paying exactly what they would if the CSR mess didn't exist in the first place.
  • The additional $6.1 million would still be paid out by the federal the form of extra APTC assistance instead of CSR assistance.

In other words, at this point, the insurance carriers and state insurance regulators have effectively nullified Donald Trump's CSR sabotage threat completely: Everyone pays exactly (or almost exactly) what they'd be paying otherwise anyway, the federal government still has to pay out the CSR funding (just from a different account), and Trump looks like the impotent idiot that he is. This would require the carriers to do a lot of confusing plan refomulation, and nearly 20% of individual market enrollees would have to "switch" from their current Silver plan to a "new" Silver plan which is virtually identical (and which would have to be purchased off-exchange), which would understandably confuse the hell out of everyone...but it should do the trick.

HOWEVER, there's still more to the story! Stay tuned...

OK, here's the other half of the story:

First: Remember, the formula for determining ACA exchange tax credits is based primarily on the benchmark Silver policy premium available in your area. If the benchmark premium goes does the amount of the tax credit.

Second: Remember that unlike CSR, which is only available to on-exchange Silver enrollees, APTC assistance can be applied to ANY metal level plan.

That means that if you qualify for, say, $100/month in APTC based on the Silver plan, you don't have to use it towards can apply it towards a Bronze, Gold or Platinum plan instead.

What does that mean in practice?

Well, it means that in the "Option 5" scenario above, those 9,100 APTC exchange enrollees would suddenly find themselves with an extra $67/month to apply towards whatever plan they want.

Now, the 6,100 receiving CSR help would presumably stay put; they'd stick with Silver to avoid losing the CSR assistance.

However, there'd be another 3,000 subsidized exchange enrollees who'd have an extra $67 to shop around with. Roughly 79% of APTC enrollees currently have Silver plans, and another 19% have Bronze; very few people receiving APTC use them for Gold or Platinum for obvious reasons, so the breakout would be roughly:

  • Around 1,700 subsidized Bronze enrollees
  • Around 400 subsidized Silver enrollees (without CSR)
  • Around 200 subsidized Gold enrollees
  • Negligible subsidized Platinum enrollees

The tiny number of subsidized Gold and Platinum enrollees will stay right where they are, thank you very much!

However, those 2,100 Bronze and Silver enrollees, who earn between 250% - 400% of the federal poverty line, will suddenly find themselves with an unexpected windfall of sorts: Around $67 extra per month which they could use to upgrade. And why wouldn't they? After all, take another look at the new, 2018 on-exchange pricing structure:

  • Bronze: $390/mo
  • Silver (Plan A): $517/mo
  • Gold: $570/mo
  • Platinum: $680/mo

Notice anything about the Gold plan price? It's only $53 more at full price than the Silver plan. The silver enrollee could actually end up getting a Gold plan for $14/month less than they'd pay for their current Silver plan...which in turn would drop their deductible down from $3,500 to just $1,200!

Alternately, many of them who'd otherwise be paying $67/month or less for a Bronze plan could end up getting a Bronze for nothing in premiums (they'd still have the high deductible, of course).

And guess who would have to foot the bill for the extra $67/month in additional APTC? Why, the federal government (ie, the Trump Administration), of course!

How much extra money are we talking about here? Well, in addition to the $5.7 million for CSR recipients (which doesn't really count, since that money is already supposed to be paid out anyway), I think it would be roughly:

  • 3,000 x $67 x 12 = $2,412,000...let's call it $2.4 million even.

Now, let's extrapolate that out nationally: Instead of 3,000 out of 10,700 exchange enrollees (28%), it'd be more like 3 million people.

If my estimates and calculations are correct...and I admit I could be off on some of them...Donald Trump's attempt at sabotaging the CSR program could potentially end up resulting in the federal government having to pay out around $2.4 billion MORE in financial subsidies to ACA exchange enrollees than it would otherwise have to.

Of course, this assumes a whole bunch of stuff happens:

  • Every carrier in all 50 states + DC would have to go with the "Silver Switcharoo" Option 5
  • Every state regulator/insurance commissioner would have to sign off on Option 5 as being kosher
  • The public would have to either understand what the sitaution was or (more realistically) at least make sure to look at their net cost after APTC assistance instead of freaking out at the unsubsidized rates
  • The ~1.1 million unsubsidized exchange Silver enrollees and ~2.2 million unsubsidized OFF-exchange Silver enrollees would have to understand why it's in their interest to switch from "Silver A" to "Silver B"
  • Other various sabotage/obstruction effects aren't taken into account by any of this (mandate enforcement, etc)
  • And of course the exact dollar figures, percentages and so on could vary widely in real life; this is all just sample data.

However, assuming most carriers/states are game, Trump's sabotage attack could not only end up being cancelled out, he could unintentionally end up causing more people to receive more financial assistance...all on his administration's dime.

UPDATE: Holy Smokes! Thanks to David Anderson of Balloon Juice for calling my attention to this analysis done by the Kaiser Family Foundation back in April which took a different methodolgical approach to this very scenario...and came to the following conclusion:

Any systematic increase in premiums for silver marketplace plans (including the benchmark plan) would increase the size of premium tax credits. The increased tax credits would completely cover the increased premium for subsidized enrollees covered through the benchmark plan and cushion the effect for enrollees signed up for more expensive silver plans. Enrollees who apply their tax credits to other tiers of plans (i.e., bronze, gold, and platinum) would also receive increased premium tax credits even though they do not qualify for reduced cost-sharing and the underlying premiums in their plans might not increase at all.

We estimate that the increased cost to the federal government of higher premium tax credits would actually be 23% more than the savings from eliminating cost-sharing reduction payments. For fiscal year 2018, that would result in a net increase in federal costs of $2.3 billion. Extrapolating to the 10-year budget window (2018-2027) using CBO’s projection of CSR payments, the federal government would end up spending $31 billion more if the payments end.

This assumes that insurers would be willing to stay in the market if CSR payments are eliminated.

Well I'll be damned.

UPDATE: There's two other potential headaches with the Silver Switcharoo scenario:

The point is that as amusing and ironic as the Silver Switcharoo workaround would be, it's also messy, confusing and while it would solve several problems, it would potentially also create a few more...which is why it should only be used if absolutely necessary.

The real solution, of course, is for Congress to appropriate the Goddamned CSR payments already.

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