Factors for enrollment in health insurance

Last week, Texas passed several policies that will improve affordability for most individuals who earn over 200% Federal Poverty Level (FPL) on the ACA marketplace.  The two big changes are moving rate review in-house instead of outsourcing the rate review to the Center for Medicare and Medicaid Services (CMS) which may lead to more aggressive pushback against large rate spikes, and a mandate that insurers price their silverloaded policies using fixed metal ratios.

This second policy is a big deal.  Silverloading is how insurers responded to the termination of direct payment for Cost Sharing Reduction (CSR) subsidies in 2017.  CSRs are used to buy down cost-sharing for only silver plans through lower deductibles, co-pays, coinsurance and maximum out of pocket limits.  CSRs are available for households earning between 100-250% FPL and who bought silver plans.  There are three flavors of CSRs with households earning under 200% FPL being eligible for silver plans that have higher value than gold plans.  Congress did not make an appropriation for CSR funding so in 2017, these payments were stopped by the Trump Administration and most states allowed insurers to put the CSR costs into silver premiums.

Higher silver premiums relative to non-silver premiums makes other plans more affordable for subsidized buyers.

When we first started talking about Silverloading, I thought that Silver would likely be priced near platinum as the blended actuarial value of CSR plans that were attractive to buyers would be someplace in the high 80s or low 90s depending on the state and its decisions to expand or not expand Medicaid.

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.

I’ve been wrong on this. I thought silver plans would be priced ~10% above gold plans. Gold plans (actuarial value of ~80%) are usually priced within wiggle room of silver plans offered by the same insurer on the same network. The pricing compression has occurred for two reasons. first the subsidy design is optimized to produce a winner take all market for the cheapest silver plan. Insurers will do a lot to drop their silver premiums as hard as they can. Secondly, several nerds including myself, strongly believe that there is a problem in the risk adjustment transfer formula that leads to silver plans being overpaid by zero sum risk adjustment which makes silver plans cheaper relative to gold and bronze than they “should” be.

There are two fixes. The first is to fix risk adjustment. The second is to mandate pricing by relative actuarial value ratios. Texas is joining several other states including Colorado and Pennsylvania to mandate that insurers price in line with actuarial value so silver plans offered by the same insurer should be ~12% higher than gold plans with some wiggle room based on allowed induced demand.

This policy will lead to gold and bronze plans becoming much cheaper relative to silver in Texas in the upcoming years. Most of the benefit will fall to non-silver buyers who are making active choices and who earn over 200% FPL. We know that most current buyers don’t move even in the face of large price shocks and automatic re-enrollment will lead to people placed into dominated plans.

It is also a great spot to think about what matters for enrollment.

We know that premium matters. Cheaper plans will lead to more enrollment than expensive plans. However premiums are not everything.

We know attention matters. We have seen that advertising increases information seeking behavior.

We know that politics matter. We have seen that partisanship leads to differential premium increases. We have seen changes in elite messaging driving away likely marginal enrollment.

We strongly suspect that navigator support matters.

We know that transaction frictions lead to less enrollment.

Lots of different things beyond improved pricing can lead to enrollment gains or losses. I think that most of the benefit of Texas, and other states, adopting fixed ratio pricing will mainly go to current buyers that renew their plans. Better pricing helps, and it can help a lot, but it will not be the only mechanism that can increase enrollment.