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With Obamacare Plans, Cost of ‘Silver’ Is Seen as Too Cheap

Aug. 17, 2021, 9:45 AM

Some state Obamacare exchanges are raising the price on the most popular “silver” plans because they say the plans are too cheap based on the coverage they offer. Regulators say their actions will effectively reduce how much most consumers pay because the higher prices will trigger higher subsidies for those plans.

The Affordable Care Act allows for platinum plans that should cover 90% of claims, gold plans that cover 80%, silver plans that cover 70%, and bronze plans that cover 60%. Premiums are supposed to be priced according to coverage, with rarely available platinum plans the most expensive and bronze plans the least expensive. However, premium subsidies are based on the second-cheapest silver plans, and cost-sharing subsidies are available for silver plans for people earning between 100% and 250% of the poverty level, or $26,500 to $66,250 for a family of four.

New Mexico and Colorado recently issued regulatory guidance requiring health insurers in their individual and small group markets to take into account the higher value of most silver plans, which include extra subsidies for the lowest-income groups, when setting their rates for 2022. Maryland, Virginia, and Pennsylvania previously took similar actions, and Texas recently passed legislation (S.B. 1296) that paves the way for the insurance department to make such changes.

The actions of these states, championed by health-care consumer advocacy group Families USA, could change the way Obamacare premiums are set so that gold plans are available at the same price, or below, some of the least-expensive silver plans, Duke University researcher David Anderson said in an interview.

Biden Gold Plan Goal

If the Department of Health and Human Services follows suit, it could accomplish one of President Joe Biden‘s campaign goals: to base the tax credits on the more generous gold plan, rather than silver plans, without having to pass new legislation through Congress. Biden wants the gold plans to be the new standard for ACA plans.

An HHS spokesman responded that, “The portion of out of pocket costs that a plan covers refers to the plan’s actuarial value (AV) and does not vary based on the premium charged. Plans are required to meet the metal-level AV bands established in the ACA, and CMS has not seen evidence of plans violating this requirement.”

Gold plans only cover less out-of-pocket costs than silver plans for low-income enrollees who receive cost-sharing reductions, as required by the ACA, the spokesman said. “At this time, state regulators have the flexibility to determine how issuers address CSR costs in the absence of federal funding for CSRs. Some states have given specific guidance to their issuers, while others leave it up to the issuer,” the HHS spokesman said.

“Issuers have generally elected to load silver plan premiums to account for these lost payments, as it is silver plan variants that account for CSRs. Other issuers have opted to load the lost CSR payments across the entire single risk pool or partially load silver plans and spread some of the remaining cost across other plans in the risk pool. In some cases, but not all, this may lead to silver plan premiums exceeding gold plan premiums. However, CMS has not seen evidence of issuer rating behavior that violates ACA requirements. CMS continues to carefully monitor the impact of “silver loading” on premiums and subsidies.”

Democrats expanded ACA subsidies for a two-year period in the American Rescue Plan Act (H.R. 1319) enacted in March, and Senate Democrats have called for extending the subsidies in Biden’s $3.5 trillion economic plan.

What has happened with the way ACA premiums are priced has evolved, along with the perceptions of ACA watchers, especially since 2017, when President Donald Trump stopped providing funding for health insurers to cover required out-of-pocket subsidies for low-income enrollees.

To make up for the lost payments, insurers raised the list price for benchmark silver plans on which premium subsidies are based by nearly 34% in 2018. Most state regulators encouraged or required insurers to raise the silver premiums to avoid raising premiums for other tiers, a process called “silver loading.”

That resulted in more generous federal subsidies, and the rescue plan made them still more generous. “There’s so few people left who are actually paying unsubsidized premiums,” Cynthia Cox, director of the Kaiser Family Foundation’s program on the ACA, said in an interview. About 92% of ACA enrollees are eligible for subsidies, she said.

“The ARPA is kind of changing the dynamics of silver-loading,” Cox said. The law guarantees the availability of free premiums to low-income enrollees for the two lowest-premium silver plans, Cox said.

That creates a “winner-takes-all situation,” in which the insurer that offers the lowest-cost silver plans “is going to get the vast majority of the enrollment in that plan, and then the other insurers don’t have a chance,” Cox said. “One way to do that might be if their competitors are silver-loading, but they’re not silver-loading.”

Misaligned Premiums

But premiums are not aligned appropriately based on the underlying generosity of coverage, Stan Dorn, director of Families USA’s National Center for Coverage Innovation, said in an interview.

“Insurance companies have financial incentives to aggressively under-price silver and make up for it by raising premiums at other metal levels,” he said.

In addition to other incentives, the federal ACA risk adjustment program overcompensates silver plans and undercompensates plans at other metal tiers, Dorn said. The risk adjustment program was set up with the intent of compensating plans that sign up sicker enrollees.

The result of all the incentives for silver plans is, “If you wind up being a plan with a whole bunch of gold and bronze people and your competitor has a whole bunch of silver people, you are going to lose money and your competitor’s going to make money,” Dorn said.

Low Use of Services

Moreover, low-income people who are enrolled in silver plans don’t use as many services as enrollees in corporate plans that have rich benefits, Dorn said. “What that means is that plans are being overpaid for their silver enrollees and underpaid for all their other metal level enrollees,” he said.

The federal government should update its risk adjustment program “so that it fits the profile of actual enrollees,” Dorn said.

Dorn also says that “what insurance companies are doing is not allowed by the ACA. The ACA’s regulations say that you have to price each plan based on utilization by a standard population, not by the actual enrollees.”

The average generosity of coverage in silver plans is about 85% of claims, which is above the generosity of gold plans, Dorn said. “So therefore silver premiums should be higher than gold. They’re not,” he said.

“The people hurt the most are people like moderate income folks who earn between twice the poverty and four times the poverty level,” Dorn said. “If things are priced properly, they could enroll in low-deductible gold and pay less than they pay now for high-deductible silver.”

In New Mexico, state regulators issued guidance that changes the way insurers must calculate their premiums and attempts to reduce the amount consumers will pay in 2022 after taking subsidies into consideration, Colin Baillio, project manager for the New Mexico Office of the Superintendent of Insurance, said in an interview.

Plans Undercutting One Another

Insurers “have been undercutting each other in the market to the point that it actually now has kind of deflated the premium tax credit in a way that is harming consumers, and particularly it’s harming those who don’t qualify for cost-sharing reductions,” Baillio said.

Rates for 2022 will be finalized later this month, Baillio said. Premiums for gold plans after subsidies are taken into account are expected to go down, while silver premiums after subsidies are accounted for “shouldn’t be altered all that much” because the subsidy is adjusted with the cost of the benchmark plans, he said.

Colorado also issued a regulatory bulletin to standardize the way plans must account for consumer use of services to make sure plans are priced appropriately, Kyle Brown, deputy commissioner for affordability programs of the Division of Insurance, said in an interview.

“We’re always refining our process and our regulatory understanding of how plans are working,” Brown said.

Colorado expects gold and bronze plan prices will likely come down significantly, Brown said. “We would expect a small increase in silver prices,” he said. Based on preliminary findings, Colorado expects about a 1.4% overall increase in the individual market, he said.

To contact the reporter on this story: Sara Hansard in Washington at shansard@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloombergindustry.com; Karl Hardy at khardy@bloomberglaw.com

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