Is silver-loading the silver bullet? Actuaries wary of long-term impact of CSR cutoff
Insurers dealing with the death of the Affordable Care Act's cost-sharing reduction payments may hit a stumbling block: the law's method for dealing with risk adjustment.
The calculation is supposed to help carriers that bear a higher share of risk in the individual market by having those that shoulder less risk make payments to offset costs. It is a formula that has been problematic since the start for smaller plans in particular, but actuaries are on the alert that it could cause more headaches to come.
Take an exchange insurer like Security Health Plan, an independent company in mostly rural Wisconsin where 60% of the people who buy their insurance from the Obamacare exchange qualify for financial help with co-pays—cost-sharing reduction payments—because their income falls below 250% of the federal poverty level.
For Security Health Plan, President Donald Trump's sudden elimination of CSRs last October changed the makeup of its exchange market substantially. The cost of CSRs for about 60% of the people who enroll in the company's exchange plans is now funneled entirely into the middle-tier silver plans. This work-around is known as "silver-loading."
Because silver-plan premiums are the benchmark for calculating tax credits used to subsidize lower-income enrollees' premiums, silver-loading has protected people with low incomes from bearing the brunt of the hikes. In fact, they have seen higher subsidies. In some cases, silver-loading has meant free or very cheap bronze plans and sharply reduced the premiums for gold plans as well.
Because it has appeared to work so well, Democrats have largely lost interest in restoring the CSRs. An effort led by GOP Sens. Lamar Alexander of Tennessee and Susan Collins of Maine to fund CSRs and a $30 billion reinsurance pool as part of last month's $1.3 trillion spending omnibus failed, and any federal stabilization effort is now unlikely to happen.
Silver-loading has accounted for about 20% of the Security Health Plan's silver-tier premium increases on the exchange. John Holahan of the Washington, D.C.-based Urban Institute said the nationwide average increase for silver premiums was more than 30% for 2018.
Ultimately, silver-loading reshaped the use of the individual market even though the needs of the insured remains the same.
"It's a forced reaction to a reaction," Michael Sautebin, actuary for Security Health Plan, said. "It was an artificial change, and we had to react."
While silver-loading appears to be working for now—many left-leaning policy analysts now support leaving CSRs out of the picture because restoring them would bring premium subsidies down to their previous levels. Sautebin said carriers likely face a day of reckoning when the time for risk-adjustment payment transfers comes around.
Stan Dorn of Families USA, a Washington, D.C., advocacy group, said risk adjustment will play out differently across the country, since risk adjustment is a "zero-sum game within each state."
However, he noted, a different level of risk has now become associated with different plans as former silver-plan enrollees shift to higher-value gold or lower-value bronze.
"If told that enrollees are now lower-risk than in the past, which is now the case, plans with a higher number of gold members may get too much compensation under risk adjustment," Dorn said.
If higher-risk enrollees opt for bronze because they have free or very cheap premiums thanks to the increased subsidies, the carriers insuring those plans could lose money in the risk-adjustment payments. This could impact companies like Security Health Plan, which has seen a shift to bronze plans even though its population, which skews older, does need to use their coverage.
And risk adjustment isn't the only thing actuaries are watching. They are also keeping an eye on how many low-income people now in cheaper or free bronze plans will actually be able to pay for care.
The CMS released its 2018 open enrollment numbers on Tuesday. A breakdown by Andrew Sprung, who writes a blog called xpostfactoid closely tracking ACA enrollment, showed that for this year there was a drop in people able to use CSRs. Nearly 460,000 fewer people enrolled in ACA plans, while more than 750,000 fewer choose plans that let them use CSRs.
The steepest drop in people who chose plans with CSRs came to the group of people between 200% and 250% of poverty—a 23% decline from last year even though total ACA enrollment in that group fell less than 3%.
People in that range have an annual income of roughly $24,000 to just over $30,000 for an individual, or about $49,000 to $61,000 for a family of four.
Actuaries and insurance officials noted that it is too early in the plan year to draw trends for how this is working out for enrollees, but an analysis pulled from HealthCare.gov and obtained by Modern Healthcare looks at how out-of-pocket costs should change for consumers. A 45-year-old at 140% of the poverty level who lives in Nashville could, for example, see out-of-pocket costs for Type 2 diabetes climb from $869 net cost per year (including a premium) with the lowest-cost CSR plan to $7,110 with a $0 premium bronze plan.
Some in the insurance industry also worry about the continued impact on unsubsidized enrollees, particularly as the 2019 market brings other unknowns such as expansion of short-term, limited-duration plans and association health plans.
Wisconsin's Security Health Plan couldn't protect the unsubsidized silver enrollees from the CSR bump, and so even the off-exchange silver group saw about a 20% attrition—double the attrition they have seen in previous years.
Because most of the individual market in the plan's region is low-income, this wasn't a significant amount of people. But Sautebin noted that it poses a troubling trend, since Security Health Plan is the lowest-price option in the market, and it's unlikely those enrollees went to a competitor.
"We are going to pay for these people one way or the other, either through insurance, or, if they are uninsured, through uncompensated care costs," said Marty Anderson of Security Health Plan. "When you've got such a small population, no insurer has enough market share to guarantee less volatility."
To some extent, these concerns appear to be nascent. A spokesperson for the National Association of Insurance Commissioners said so far the group has "heard nothing that would make us concerned about silver-loading."
Dorn, who opposed restoration of CSRs because it would lower the tax credits for people who qualify for subsidies, said that he would like to see more state efforts on off-exchange silver plans to help the unsubsidized and noted the complexity of the issue.
"The story is not unequivocal," Dorn said.
Clarification: This story has been updated to clarify how many people qualified for CSR payments to reduce their insurance costs.
An edited version of this story can also be found in Modern Healthcare's April 9 print edition.
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