Earlier this week, the Hill reported that the Blue Cross and Blue Shield Association wanted Congress to appropriate funding for Cost Sharing Reduction (CSR) subsidies:
A leading health insurance group said Monday there is an “urgent” need for Congress to act to stabilize ObamaCare markets after the repeal of the individual mandate in December.
“There’s an urgent need to stabilize the market,” Justine Handelman, a senior vice president at the Blue Cross Blue Shield Association, told reporters at a briefing.
They argue that this will lead to lower non-subsidized Silver premiums and that is a desirable policy goal. In isolation, I agree. In general, I strongly disagree.
Most states loaded the cost of CSR into their Silver plans. A large number of states, most notably California and Pennsylvania loaded the cost of CSR into only their on-Exchange Silver plans while off-Exchange Silvers were sold at “normal” rates. Going forward, more states and more insurers are planning to engage in Silver Loading with the Off-Exchange Switcheroo option.
There is a good technical argument for the Blues. From 2014 to September 2017, CSR funding was tied to actual claims experience. Building estimated CSR costs into premiums introduces another source of variance. Variance can be dealt with but it is another source of potential error in correctly setting premiums.
I think there is a slightly more cynical reason to suspect why the Blues may want CSR appropriated. When states adopted Silver Loading strategies, the relative spread between the Benchmark Silver and other metal bands changed. Bronze plans became much cheaper for subsidized buyers and Gold plans either became less expensive than Silver Benchmark plans in 20% of the Healthcare.gov counties or far more cost competitive Gold offerings.
In regions where there is only a single insurer, this is irrelevant. However in regions where there is both a high cost insurer and a low premium insurer, introducing Silver Loading makes the low cost insurers’ subsidized products far more appealing on a relative basis than the were before. Reducing the Silver Benchmark by 10% to 15% reduces the premium spreads and makes high cost insurer products more attractive.
Re-instituting CSR means the pricing and risk adjustment advantage enjoyed by Medicaid-like carriers decreases. It could be that the Blues are trying to protect themselves from competition.