Silver Loading

Thanks to the American Rescue Plan & Inflation Reduction Act, residents of every state + DC who earn less than 150% of the Federal Poverty Level (FPL), around $20,400/yr for a single adult, is eligible for a $0-premium "Secret Platinum" plan. If they earn between 150 - 200% FPL (roughly $27,200/yr), they're eligible for a slightly less-generous "Secret Platinum" plan with premiums less than 2% of their income (just $45/month for a single adult).

As I explained here, while Silver ACA plans normally only cover around 70% of the average enrollees' medical expenses (in aggregate), the ACA's "Cost Sharing Reduction" (CSR) subsidies mean that eligible enrollees who select "CSR Silver" plans will actually have 94% of their expenses covered for the < 150% crowd and 87% of their expenses covered for the 150 - 200% crowd.

Since Gold plans cover around 80% of expenses & Platinum plans cover roughly 90%, this means that "CSR Silver" is effectively "Secret Platinum" plans for anyone earning less than 200% FPL.

via Amy Lotven of Inside Health Policy:

Advocates To CMS: Fix Rate Misalignment In Next Exchange Reg

A coalition of patient advocates is urging HHS to address high out-of-pocket costs by demanding that insurers selling marketplace coverage strictly adhere to the Affordable Care Act’s rate-setting requirements. Insurers have strayed from the mandate in recent years by underpricing silver-tier plans and overpricing the more-generous gold-level products, the advocates say, highlighting an issue that experts have been raising for years and that some states are already addressing at the local level.

But health experts also say that HHS must fix misalignments in the risk adjustment program - and that exchanges must have strong consumer decision support tools -for a policy fix to be sustainable.

By clarifying and enforcing the ACA’s single risk pool requirement, HHS could significantly reduce consumers’ cost-sharing burdens while also discouraging gaming, the advocates say.

The ticking time bomb is getting louder every day as time runs out for the expanded ACA subsidies which were temporarily provided by the American Rescue Plan to be made permanent:

The looming disaster on Obamacare subsidies keeps looking worse

Congressional Democrats are confronting a ticking time bomb that threatens both the health security of millions of Americans and Democrats’ own political security in the midterm elections. If they don’t act fast, it’s going to explode.

...Now, another group of Democrats outside Washington is getting increasingly nervous about this prospect. Democratic governors, many of whom are up for reelection this year, don’t want to watch while Congress makes life more difficult for their constituents.

Underscoring the point, a group of Democratic governors has released a new letter imploring congressional leaders to extend the enhanced subsidies.

I talked about it endlessly throughout 2017 & 2018, but it's been awhile since I last discussed the ACA's quirky Silver Loading pricing strategy in detail.

In order for the rest of this entry to make sense, we need to review what Silver Loading is and how it works:

• The ACA includes two types of financial subsidies. Advance Premium Tax Credits (APTC) reduce monthly premiums for low- and moderate-income.

• Cost Sharing Reductions (CSR), meanwhile, reduce deductibles, co-pays and other out-of-pocket expenses for low-income enrollees.

• In 2017, Donald Trump cut off CSR reimbursement payments in a failed attempt to sabotage the ACA, thinking this would cripple the ACA exchanges. Instead, insurance carriers implemented a very smart alternative pricing mechanism to make up for their CSR losses, which came to be known as "Silver Loading."

• The carriers basically calculated how much they expected owe in CSR expenses the following year...and then simply added that amount to their premiums for the following year instead.

• While there's several ways that carriers can add the extra CSR cost to their premiums, "Silver Loading" involves doing so by adding 100% of the extra cost to Silver plans only, as opposed to spreading it out across Bronze, Silver, Gold & Platinum plans.

I've written in-depth explainers before of how Silver Loading came into existence and how it works as part of longer blog posts, but I also wanted to have a simpler, standalone version, so here it is.

First, a quick backstory:

Welcome to the latest chapter in the long, epic CSR Lawsuit Saga which has been slogging along for six years now.

Here's a quick recap (again):

• The ACA includes two types of financial subsidies for individual market enrollees through the ACA exchanges (HealthCare.Gov, CoveredCA.com, etc). One program is called Advance Premium Tax Credits (APTC), which reduces monthly premiums for low- and moderate-income. The other is called Cost Sharing Reductions (CSR), which reduces deductibles, co-pays and other out-of-pocket expenses for low-income enrollees.

• In 2014, then-Speaker of the House John Boehner filed a lawsuit on behalf of Congressional Republicans against the Obama Administration. They had several beefs with the ACA (shocker!), including a claim that the CSR payments were unconstitutional because they weren't explicitly appropriated by Congress in the text of the Affordable Care Act (even though the program itself was described in detail, including the payment mechanism/etc.)

NOTE: This is a joint post by three of my colleagues and myself:
David M. Anderson, Charles Gaba, Louise Norris and Andrew Sprung

State policymakers have been prolific and creative in putting forward measures to strengthen their ACA marketplaces. Measures enacted since 2017 or in progress now include reinsurance programs, which reduced base premiums by an average of 20% in their first year in the first seven states to implement such programs; new or renewed state-based exchanges, which capture insurance user fees that can be used for advertising and outreach; state premium subsidies to supplement federal subsidies; and state-based individual mandates, which can provide funding for all of the above.

For three years running, thanks to a combination of the way the ACA's premiums subsidy formula works and the Silver Loading workaround, several million low-income people are eligible for fully ACA-compliant healthcare policies which end up costing them NOTHING in premiums after federal tax credits are applied.

Here's why: Under the ACA's subsidy formula, if you earn between 100% - 400% of the Federal Poverty Line ($12,490 - $49,960/yr if you're single), you're eligible for subsidies which bring the cost of the benchmark Silver ACA plan down to between 2.06 - 9.78% of your income, on a sliding scale.

If you earn less than 200% FPL (just under $25,000), you also qualify for heavy cost sharing reduction assistance as well...but only if you enroll in a Silver plan.

So, let's suppose you earn exactly $25,000/yr (just over 200% FPL). At that income, you'd qualify for subsidies bringing the benchmark Silver down to 6.5% of your income, or $135/month. If the benchmark plan costs, $600 at full price, you'd therefore be eligible for $465/month.

Back in late October, a few days before the launch of the 2020 Open Enrollment Period, I issued a warning to ACA exchange enrollees who may have been benefiting from the "Silver Loading" premium pricing strategy for in 2018 and/or 2019 that the enhanced subsidies they've been taking advantage of for two years are likely going to be reversed for 2020:

What happens next year if the benchmark Silver plan drops by 4%...but the Bronze, Gold, and the OTHER Silver plans stay flat?

I talked about this the other day, but re-reading my post, I don't think I emphasized it nearly enough:

It's also important to keep in mind that due to how the ACA's subsidy formula is structured (combined with Silver Loading and Silver Switching), a lower benchmark premium will actually result in higher net premiums for many subsidized enrollees (although it's still good news for those who are unsubsidized). Here's why:

• Let's say the unsubsidized premiums for a given enrollee in 2019 is $400 for Bronze, $600 for the benchmark Silver and $700 for Gold.
• Let's say that enrollee earns exactly $32K/year (256% FPL), meaning they only have to pay 8.54% of their income for the benchmark plan.
• That means they qualify for ($7,200 - $2,733) = $4,467 in subsidies ($372/month).

This would leave them paying $228/month for the benchmark Silver...but they can apply that towards a Bronze plan if they wish so they'd only pay $28/month, or a Gold plan so they only pay $328/month.