State Approaches to Handling CSR Uncertainty for 2018 Premiums

Note: this post is a joint effort with colleagues who have closely tracked the CSR chaos induced by Trump and Republicans in Congress. Dave Anderson is a former health insurance analyst, now a healthcare scholar at Duke, and a blogger at Balloon Juice; Charles Gaba is the fabled chronicler and analyst of ACA enrollment, marketplace pricing, and healthcare policy; Louise Norris is co-owner of a unique mom & pop health insurance brokerage for individual market customers and a top source of marketplace information and analysis at her own blog (link in byline) as well as at healthinsurance.org and elsewhere.  Andrew Sprung writes about healthcare policy on his blog, xpostfactoid, as well as at healthinsurance.org and other publications.

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The open enrollment period for the 2018 ACA Marketplace that begins on November 1, 2017 is likely to confront enrollees with more challenges than any open enrollment since the troubled launch of the ACA Marketplace in October 2013. The time period is shorter, the outreach will be far less robust, and the pricing of plans will behave in ways that people do not expect.  Much of the pricing variance will be a result of choices that states and insurers have made in response to the uncertainty over whether the federal government will continue to reimburse insurers for the Cost Sharing Reduction (CSR) subsidies that insurers are legally obligated to provide to qualified exchange enrollees.  

In the ACA Marketplace, enrollees choose among plans grouped in four “metal levels” defined by actuarial value (AV), a measure of the percentage of average medical costs the plan will cover. Bronze plans provide coverage at  60 percent AV, Silver plans at 70 percent AV, Gold at 80 percent AV and Platinum at 90 percent AV.

CSR is available only to low income enrollees, and only with Silver plans. For low income enrollees, CSR boosts AV from a baseline of 70 percent to:

  • 94 percent for enrollees with incomes up to 150 percent of the Federal Poverty Level (FPL)
  • 87 percent for enrollees with incomes between 150 and 200 percent FPL
  • 73 percent for enrollees with incomes between 200 and 250 percent FPL

At present, 57 percent of on-Marketplace enrollees access CSR, including over 80 percent of Silver plan enrollees.  Silver plans are priced, however, as if the AV is 70 percent for all enrollees. Under threat that the Trump administration will stop reimbursing CSR, or that the courts eventually will order the administration to stop payment if Congress fails to appropriate the funds, states and insurers must decide how to enable insurers to cover the cost of providing the richer CSR-boosted coverage.

States and insurers have taken several approaches to managing to the CSR uncertainty. Some states have offered guidance or positive instruction, while others have left decisions entirely to insurers. The choices states and insurers have made will reshape the relative value of plans offered at different metal levels to various income groups — and determine who bears the brunt of the federal government’s potential abdication of responsibility for CSR reimbursement.

Among the choices made by states and insurers:

  • Assume CSR is paid in a timely manner
  • Assume CSR is not paid and load all costs onto plans at all metal levels.
  • Assume CSR is not paid and load all costs only to all Silver Plans
  • Assume CSR is not paid and load all costs only onto on-exchange Silver plans
    • Insurers are required to sell any plan offered on the exchange off-exchange as well, but they may sell additional plans off-exchange.  These off-exchange-only Silver plans would not have CSR costs loaded.

States are not required to impose one assumption on insurers. In New Mexico, for instance,  some insurers have assumed that CSR will not be paid and have spread the costs through all metal plans. However, one New Mexico insurer, Molina, also assumed that CSR will not be paid but loaded all of the CSR costs into their Silver plan. This leads to a situation where the Molina Gold plan is less expensive than all Silvers and is comparably priced to all non-Molina Bronze plans. Georgia is also shaping up to be complicated, with one insurer assuming CSR funding will continue, and the rest assuming it won’t, but with varying approaches to loading the cost of CSR onto premiums.

The distributional consequences of these different choices are significant and varied.   

Assume CSR will be paid

In states that have chosen to assume that CSR will be paid, the relative pricing of plans at each metal level will be consistent with prior years. Prospective enrollees will see rate increases driven by utilization, medical trend and the re-institution of the premium tax after a one year holiday. Insurers in these states will also likely price in uncertainty with respect to CSR reimbursement to the extent tolerated by regulators.  Price differences for their offerings at different metal levels will be proportionate to those of their offerings in past years.

The risk is that the CSR payments will stop at some point.  If that occurs, insurers will face three choices.  They can withdraw from the market as they are contractually allowed to do, they can ask for emergency rate resets from the state regulators (as permitted by a backup plan that Washington state regulators are implementing) or they can continue business as usual with the expectation that they can recover CSR costs through successful litigation.  The final option favors large, well capitalized insurers in the same way that the long slow process of litigating risk corridor payments favored well capitalized insurers over thinly capitalized start-ups.

Assume CSR will not be paid; cost added to all plans

States could instead assume that CSR will not be paid, and instruct insurers to spread the CSR cost burden across all metal bands.We are not aware of any states that have done this, although it’s the backup plan in Colorado, where the current approach assumes CSR will be funded. Some insurers have gone this route, however, in states that haven’t issued regulatory direction on the CSR issue. In a state where all insurers take this approach, subsidized Silver buyers will be no worse off as long as they buy the benchmark (second cheapest) Silver plan or the cheapest Silver plan, but they will likely be worse off if they buy a Silver plan that is priced above the benchmark. Subsidized Gold and Platinum buyers will usually see higher premiums — as will all non-subsidized buyers across all metal levels. This strategy shrinks the market and makes the risk pool sicker.

Assume CSR will not be paid; cost added to all silver plans

Many states, including Idaho, Louisiana, Pennsylvania and South Carolina, are assuming that CSR payments will not be paid and have instructed their insurers to load all costs onto only Silver plans, including those sold off-exchange.  This increases the Silver benchmark premium relative to all other metal levels.  Individuals with incomes under 200 percent Federal Poverty Line (FPL) will generally be no worse off if they continue to buy CSR-enhanced Silver plans.  Subsidized individuals with incomes over 200 percent FPL who buy a Silver plan will be no worse off but might miss an opportunity to switch to higher-AV Gold plans that would cost them less than Silver. (In insurance parlance, those who choose Silver will be in dominated plans — that is, plans with a higher premium and lower actuarial value than other available plans.) In fact all subsidized Bronze, Gold and Platinum buyers will have access to a significant discount as subsidies rise to cover the premium of the inflated Silver benchmark.

Unsubsidized buyers in these states will be held harmless as long as they avoid Silver plans, which will be priced near their CSR-enhanced actuarial value (probably near 90 percent) but provide unsubsidized buyers with just 70 percent AV.

Assume CSR will not be paid; cost added only to on-exchange silver plans

The last option offers protection for non-subsidized Silver buyers.  States or insurers can elect to load all of their CSR costs onto only their on-exchange Silver plans while creating new off-exchange only Silver plans that do not have a CSR load factor.  California has adopted this as state policy.  Insurers in other states have opted to split their Silver filings to produce the same result.  The same distributional impacts occur for all groups as in the Silver load scenario except for non-subsidized Silver buyers.  As long as non-subsidized Silver buyers switch their plans to the off-exchange-only Silver plans being offered, they too will be paying rates that are based solely on projected claims experience and not on CSR funding uncertainty.

If states or insurers assume that CSR will not be paid and also elect to load all costs onto the Silver plan, states will need to aggressively reach out to the public to encourage active renewals. Auto-renewal will place many people in dominated plans.   Silver plans will be dominated for everyone who earns 200 – 400 percent FPL, Gold plans will be significantly less expensive than the benchmark Silver plan in some regions and Bronze plans will be significantly less expensive for most subsidized buyers in most regions.  

The choices that states and insurers make always influence the size and relative health of the individual insurance market.  In 2018, the impact of these choices will be magnified.  Some states like California will see average actuarial value of purchased plans increase even as the cost barrier to purchase Bronze, Gold and Platinum plans declines. Other states are gambling that the basic market conditions in 2018  will be the same as they were in 2017 despite significant legal, political and policy risk. Those states are assuming that the federal government will continue to make CSR payments — but participating insurers are, to varying degrees, pricing in the risk that those payments will stop. As a result, this choice could result  in reduced affordability for unsubsidized prospective enrollees.

If the federal government defaults on its obligation to reimburse insurers for providing CSR as required by statute, insurers must price in the additional actuarial value that CSR provides. The most efficient way to do this is to concentrate the additional premium in plans that provide the additional AV.  Short of pricing CSR-enhanced Silver plans precisely according to their actual AV, which no state has done, the nearest states can come is to encourage or instruct insurers to increase the premium for on-exchange Silver plans only. Under this pricing scheme, virtually all enrollees who choose Silver should be eligible for “strong” CSR (AV 94 percent or 87 percent), making it feasible to price on-exchange Silver at Platinum levels. For enrollees above 200 percent FPL, as noted above, Gold plans will be less expensive than similar Silver plans .

Going this route holds most enrollees harmless while actually improving affordability and comprehensiveness of coverage for enrollees with incomes between 200-400 percent FPL, an income group in which takeup of marketplace offerings has been weak. The only loser under this aggressive risk management measure is the federal government, since it will have to pay larger premium subsidies to offset the more expensive silver plans. But Congress can cut those losses by appropriating the funds that the ACA instructs the Treasury to pay to insurers as CSR reimbursement. 2018 rates are mostly locked in at this point. But appropriating funding for 2019 CSRs — well in advance of the rate preparation and filing period in early 2018 — would result in a more stable individual market and smaller premium subsidies in 2019.






16 replies
  1. 1
    rdldot says:

    Are we supposed to ask questions now?

    ReplyReply
  2. 2
    rdldot says:

    ok – I will ask anyway. I am going to need to buy insurance thru the ACA in 2018. I live in Texas and would like to know where I can go to get help about the best policy for me. I have more flexibility than most in that I can adjust my income to get the right coverage, but one thing I have not been able to figure out with any clarity is how to determine my income. I will be taking money from my 401k but don’t want to fall below the point where I will not be able to get the credit because Texas doesn’t have the Medicaid option. I haven’t been able to figure out if the income I put into the calculators is before or after income taxes. It seems like before but I’m not sure. Any help is appreciated.

    ReplyReply
  3. 3
  4. 4

    Great question — the relevant income for subsidy purposes is Modified Adjusted Gross Income (MAGI)

    https://obamacarefacts.com/modified-adjusted-gross-income-magi/

    That is a pretty good explainer. The number you put into the calculator is mostly your regular income minus a few deductions/credits.

    Go talk with a navigator if you can find one. If not, talk with an insurance broker.

    ReplyReply
  5. 5
    rdldot says:

    Do you know when the 2018 info will be available to the navigators and insurance brokers? Or will it depend on the state?

    ReplyReply
  6. 6
    rdldot says:

    Do you know if I can fund my HSA with money from my 401k? I mean, pre-tax. I know I can put money in after-tax but I don’t see the point in doing that.

    ReplyReply
  7. 7

    @rdldot: I don’t know about HSA and 401Ks — talk to accountant/broker/tax attorney.

    As to when the data comes out, probably within the next two weeks. I don’t have a good deadline.

    ReplyReply
  8. 8
    MomSense says:

    This is so upsetting. The trump administration is intentionally sabotaging the health insurance markets in order to stick it to Obama? I bet he can’t even answer a basic question, about how health insurance works. We have already heard Paul Ryan reveal he doesn’t know how health insurance works.

    Aren’t the president and congress supposed to faithfully execute the laws of the land? I am absolutely disgusted by this.

    ReplyReply
  9. 9
    Kelly says:

    @rdldot: Yes you can fund your HSA with your IRA/401K. That’s what we did in 2015. The money going into the account does not count toward MAGI so it can keep you under the subsidy cliff but could also drag you under the subsidy eligible income. It was a bit of a PITA because the over 55 extra $1000 dollars for one of us needed to go into a separate account. Not at all clear from anything I read online or even the credit union gal that set up our account. Keeping track of expenses was OK just used the account’s debit card.

    ReplyReply
  10. 10
    rdldot says:

    @Kelly: Thanks Kelly! That’s good news. It always seemed like I should be able to do it since both incomes were initially untaxed, but it’s hard to get someone who knows about all these things. The one tax preparer I used in the past didn’t know the answer.

    ReplyReply
  11. 11
    Another Scott says:

    Great summary, David-Richard.

    My OCD is begging you to change the font size of the “Assume CSR will be paid” section header to match the rest.

    Thanks! :-)

    Cheers,
    Scott.

    ReplyReply
  12. 12
    daverave says:

    Assume this is a minor typo:

    “87 percent for enrollees with incomes between 50 and 200 percent FPL”

    and should read between 150 and 200 percent

    ReplyReply
  13. 13
    sharl says:

    Just popping into this dead thread to say ‘thanks’ to all you experts for this joint effort. I had a feeling that this was no small task, but not being an expert in any aspect of this myself, I’m never certain. However, long time HuffPo health care reporter Jeff Young confirmed the importance of the work you folks did here:

    This is a dang public service. https://t.co/n1MytsXfDX— Jeffrey Young (@JeffYoung) October 11, 2017

    ReplyReply
  14. 14
    sharl says:

    The complexity of this topic, exacerbated by the numerous sabotage efforts from within shifts in government ACA implementation, make it hard for laypersons like myself to keep up with all this. I’ve decided that I will at least try to make an effort to edit and update relevant pages in Wikipedia using my limited skills there in combination with what I learn here and elsewhere.

    After seeing this post earlier today, I went over to Wikipedia to see what they say on CSRs, and was at first surprised to find nothing directly on the topic. I at least did the minimum of adding cost-sharing reduction to the disambiguation page for CSR, hopefully meeting minimum criteria and providing adequate justification for its addition (in the past I’ve had entries in disambiguation pages revoked (“reverted”) for failing to do so).

    I’ve thought about this off-and-on all day — deciding where to put discussion of the CSR issue in Wikipedia and what to say — so as to be accurate and clear in as few words as possible, while meeting their criteria for introducing new information. Case in point on that criteria bit is the note accompanying the section titled Actions to hinder implementation:

    The neutrality of this section is disputed. Relevant discussion may be found on the talk page. Please do not remove this message until conditions to do so are met. (August 2017)

    One of the criticisms of Wikipedia editors – at least in the past – is that they are top-heavy in “tech-bros” who not only have a low regard for what the wimmens say, but often have a libertarian streak, and a particularly stupid/ignorant streak at that for the younger ones (that recently fired Google techbro is an almost perfect example of the type). So I was afraid that the complaint giving rise to the precautionary statement leading the section was due to some ignorant insurance-hating young techbro. Fortunately, when I went to the “Talk” section as advised, I found a rather reasonable concern by someone with “Dr.” in his/her title (a medical doctor, dare I hope?):

    I am seriously concerned about this section as it reads as non-neutral. It may be factually accurate, but it’s poorly sourced, it includes weasely language (saying that unspecified “prominent Republican politicians”) have done of these misdeeds, and non-neutral language (“then insisting,” “among others,” “Ongoing insistence, despite CBO assertions to the contrary”). This really reads as a little pro-ACA diatribe. Not only does it need to be cleaned up and cite checked, but appropriate contrary views need to be added, as I know some Republicans have tried to justify various actions. If these steps aren’t taken then we should delete this subsection. –Dr. Fleischman

    A fair complaint IMO, and one I intend to factor into how I proceed on this, e.g., by using articles quoting ACA critics/saboteurs by name, or – less satisfactorily – using articles that at least quote multiple (anonymous) sources rather than just relying on one leaker.

    This is the kind of section where the CSR sabotage effort should be noted (though without the word “sabotage” of course). I just gotta do a decent job on the sourcing.

    In the meantime, if you (David) or any of your fellow scholars and academics are in need of something for your students to do as they gain expertise in health care insurance/funding/policy – especially if those students hope to interact with us ignert laypeople in their futures as health care professionals – places like Wikipedia and other information clearinghouses wouldn’t be bad places to hone their skills (assuming they aren’t doing that already).

    ReplyReply
  15. 15

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