The Wyden Waiver (or Section 1332 waivers or State Innovation Waivers) are part of the Affordable Care Act. A Wyden Waiver allows states to revamp their health insurance system in whatever way they want as long as the new model is no worse than deficit neutral from the federal perspective, and it is no worse than what was happening in the state via the Exchange. I am very curious about these, as I think this is the next big area of interesting policy making in both Blue and Red states if the Supreme Court correctly laughs at the plaintiffs in King.
Andrew Sprung at Xpostfactoid has been pushing hard on the issue of Cost Sharing Reduction (CSR) subsidies that are attached to Silver plans. CSR reduces the out of pocket maximum of a Silver plan depending on income. People making between 100% and 150% Federal Poverty Level (FPL) have CSRs that make their Silver plans into Platinum plus plans (94% Actuarial value (AV)), while people making between 150.1% FPL to 200% FPL have CSR that transform Silver into Gold Plus (87% AV), while people making between 200.1% FPL to 250% FPL see their Silver plans get a small bump to 73% FPL. Andrew has long argued that Exchange design has played a significant role in the degree of Silver with CSR bought by people making under 200% FPL. I agree with his evidence.
Here is where a Blue State Wyden waiver could come into play to expand high AV coverage to more people.
Right now, a health plan offers five banded products at five price points (Catastrophic, Bronze, Silver, Gold and Platinum) with eight benefit configurations per base plan. Those benefit configurations are Catastrophic, Bronze, Silver, Silver 94% AV, Silver 87% AV, Silver 73% AV, Gold and Platinum. When someone searches on Exchange, they see the premium and a subsidy calculated as function of their family income and the price of the second Silver. If a person qualifies for CSR, they don’t see the cost of those subsidies reflected in their purchasing information. However insurance companies know exactly how much they expect to get from a 28 year old at 152% FPL from the combination of cash premium, federal premium subsidy, and cost sharing reduction subsidies. And the insurer knows exactly the revenue they expect from any other age and income combination. It is two distinct invoices derived from the same calculation.
Currently, CSR is only attached to Silver plans. What if states decided to change their subsidy attachment point as part of the Wyden Waiver?
If a state decided to look at the total cost of providing the second lowest Silver in determining subsidy levels instead of just looking at the second lowest premium for Silver, average actuarial value would increase as choice space increases. The change in subsidy formula would be the sum of premium plus CSR subsidy cost minus the individual contribution = subsidy.
Let’s work through an example. A 35 year old individual making 140% FPL in zip code 90210 qualifies for a CSR Silver at $34 per month and a $200 premium tax credit. The cost sharing subsidy bumps the actuarial value from 70% to 94%. The same individual qualifies for a Platinum plan at $98 per month. The Platinum plan covers 90% AV. The incremental bump in AV from 70% to 90% costs $64, so the incremental bump from 90% to 94% AV is probably another $15. The total cost to the government for this person to buy the CSR Silver is about $280 per month. The total cost is $314 per month.
Inserting total bundled cost of a policy in place of premium into the subsidy formula would re-order the offer a much wider choice set. This same individual could get a CSR Silver at 94% AV for $34 per month, a Platinum at 90% AV for $20 per month, CSR Silver 87% for $14 per month, Gold at 80% AV for almost nothing in monthly premiums. Straight Silver and Bronze plans would almost not be worth wasting time looking at.
Plumbing this type of dynamic premium subsidy attachment is fairly straightforward. Insurers already have projections what each age band for each product produces in cost sharing subsidy revenue, so new reference tables would be needed, but the data is already present. It would increase the average expected actuarial value of Exchange coverage, especially for the people who can least handle a $3,200 surprise bill while also increasing choices. It might make sense for a relatively healthy 35 year old making 140% FPL ($1,375/month) to accept a little more risk of an $800 deductible instead of a $350 deductible to reduce premium expenses by $22. At the same time, someone who is in poorer health and qualifies for an 87% AV CSR Silver plan could decide the bumping up to a 90% Platinum for an additional $17 per month might be a good choice.