Last week, I noted that Gold plans are priced well below comparable Silver plans in Houston. This is a result of silverloading and a change in state policy.
Silverloading is the practice, common since 2018, of insurers putting the incremental cost of Cost-Sharing Reduction (CSR) benefits into premiums. CSR benefits reduce deductibles and cost-sharing for low income (<250% Federal Poverty Level(FPL)) buyers who purchase silver plans. Silver plans typically have an average actuarial value(AV) of 70% AV which means insurers pay about 70% of the group’s expected claims and individuals in the form of deductibles, co-pays and co-insurance pay the other 30%. CSR ups the AV to 87% (151-200% FPL) or 94% (100-150% FPL).
In October 2017, the payment pathway for CSR benefits changed. CSR benefit payment had previously been routed behind the scenes on a reimbursement and reconciliation basis. That path stopped. Instead, insurers placed the incremental cost of the benefits that they were still required to offer into silver premiums. There was a lot of variation on how insurers did this.
Most insurers estimated their own incremental cost of the benefit and added that cost into the premium of their silver plans. The incremental cost of the benefit is a combination of unit pricing and the health characteristics of the enrolled population. Some health insurers attract mostly healthy people who don’t use much if any healthcare. Other health insurers attract people who are more ill and will use more of their CSR benefits. Pricing off of their own experience leads to significant variation in the size of the silverload for different insurers in the same market. Furthermore, low income enrollees use healthcare differently than higher income enrollees (paper forthcoming with some great co-authors on one aspect of this differential utilization :) ). This differential healthcare utilization by income gradient also implies that the risk adjustment formula needs to be precisely calibarated or it is likely to be wrong in how it shifts money between metal levels.
Silver plans sold on Healthcare.gov have an AV that is a little bit of 70% plans + a few 73% AV plans (201-250% FPL) + a lot of 87% AV plans + (even more 94% AV plans (non-Medicaid Expansion states) OR + a lot of 94% AV plans (Medicaid Expansion states)
These factors have frequently led to a situation where Silver plans with a blended AV in the high 80s having premiums lower than gold plans with AVs in the high 70s or low 80s. This is weird!
Texas had previously allowed this type of pricing to happen. For the 2023 plan year, a new state law is in effect. It says that silver plans must be priced pretty damn close to their actual actuarial value. It is not quite there as a there is a common multiplier instead of a single risk pool requirement but that is an argument for actuaries and no one else. This has led to gold plans from the same insurer to be priced well below silver plans.
Other states, like New Mexico, have previously adopted this type of regulation. There are concerns that without fixing risk adjustment, some products, including Bronze plans, won’t be profitable. In Texas, one large insurer stopped selling Bronze plans for 2023. But if the risk adjustment works out, this policy change makes plans far more functional and useful for individuals earning over 200% FPL.