CSR and the policy of inertia

Andrew Sprung at Xpostfactoid asks a common question about Cost Sharing Reduction (CSR) subsidies.  

the primary agenda for Democrats is obvious: appropriate funding for Cost Sharing Reduction payments and for some kind of reinsurance program to replace the program that expired in 2017….
To have any real hope of getting these measures passed in a Republican Congress, however, Democrats are going to have to face up to the question: What pound of flesh will they let Republicans extract as payment for these essential, common-sense fixes?

He envisions a negotiating environment where Democrats must concede significant waiver flexibility in return for Cost Sharing Reduction subsidies.  This model of leverage is wrong.  

Democrats have no reason to trade CSR funding for policies that they don’t prefer.  Inaction gives them an incredible policy victory.  Conservatives are the ones who need to make concessions to fully fund CSR.  

The Congressional Budget Office projects that most states will allow insurers over the long run to load the cost of their obligated but not reimbursed CSR obligations to only their Silver plans.  This will have an incredible change in the dynamics of the market.  

Total federal subsidies for health insurance in the nongroup market—in particular, the sum of the premium tax credits and the CSR payments—would increase for two reasons: The average amount of subsidy per person would be greater, and more people would receive subsidies in most years….

 

By CBO and JCT’s estimates, the number of people receiving subsidies for nongroup health insurance would increase under the policy in most years. In particular, because tax credits would increase and gross premiums for plans other than silver plans in the marketplaces would not change substantially, many people with income between 200 percent and 400 percent of the FPL would, compared with outcomes under the baseline, be able to pay lower net premiums for insurance that pays for the same share (or an even greater share) of covered benefits….reducing the number of uninsured people, on net, in most years.

Insurers are increasingly explicit that they are loading the full cost of the uncertainty onto only the Silver plans.  This is in states as ranging in size from  Idaho to California.  Bronze, Gold and Platinum plans will be priced on the basis of changes in medical costs, changes in enrollment and other normal insurance industry factors.  Silver plans will be priced on those basis and then there will be a significant second price increase on top of the baseline increase.  

The Center for Medicare and Medicaid Services (CMS) issued a guidance letter on August 10th to states contemplating loading CSR costs onto Silver plans only.  This letter states that for risk adjustment purposes, Silver load only plans will be treated as if they are Platinum plans.

For the risk adjustment transfer formula, we intend to propose considering the 87 percent and 94 percent silver plan variants (as well as the limited cost-sharing and zero cost-sharing variants) to have plan metal level actuarial values of 0.9 in order to account for the higher relative actuarial risk associated with these plans

From a mechanical point of view, this is good guidance and a reasonable solution to the problem of running risk adjustment where Silver plans cost more than Gold plans.  It is an incredible admission of a massive policy change regarding the sufficiency of the subsidy.  

Subsidies in the ACA are calculated by taking the difference from the second lowest premium Silver plan and an individual’s expected contribution.  The individual expected contribution is a function of their income.  Any premium that is not covered by the expected individual contribution for the benchmark Silver is covered by the federal premium subsidy.  

The ACA designated Silver plans as having 70% actuarial value (AV) with allowed minimal variation.  In 2018, this means Silver plans will range from 66% AV to 72% AV. In most competitive markets, the benchmark Silver plan will be close to 66% AV.  However in states that load the cost of CSR onto only Silver plans , the Silver plans will have an AV of 90% and this is what the subsidies will be calculated from.  

The ACA exchanges have had difficulty in signing people up who make more than 200% FPL because the cost of the post-subsidy premiums rise too quickly in comparison to perceived value.  Silver, if it is priced at 90% AV, will lead to incredibly lower prices for individuals making between 200% and 400% FPL.   Most people making just under 400% FPL will be able to buy Bronze plans for no out of pocket premius.  Gold plans with $1,500 deductibles will be significantly more affordable in this scenario than Silver plans with $3,000 deductibles are today to individuals and families earning more than 200% FPL.

Liberals will have achieved an incredible policy victory in the states that force insurers to load the cost of CSR onto only Silver plans.  In these states, the benchmark plans will be sufficient to buy 90% actuarial value coverage.  That is better than Medicare. That is an incredible improvement over the ACA as plans will become more affordable to many more people as premiums and deductibles will decrease and the risk pool will get healthier as the value proposition gets better.  

Since it is an incredible policy victory that will be cemented into place by inaction, giving it up for short term funding of a secondary set of subsidies would be counterproductive.