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Guilty!!! I wrote the lead article in the February edition of the Society of Actuaries Social Insurance and Public Finance Section newsletter In The Public Interest. I highlighted that 2019 individual market premiums declined (surprising to most observers) by 2% on average in states that utilize the Affordable Care Act (ACA) federal exchanges. My source was the Assistant Secretary for Planning and Evaluation (ASPE) landscape brief 2019 HEALTH PLAN CHOICE AND PREMIUMS IN HEALTHCARE.GOVSTATES. ASPE is the “principal advisor to the Secretary of the U.S. Department of Health and Human Services (HHS) on policy development, and is responsible for major activities in policy coordination, legislation development, strategic planning, policy research, evaluation, and economic analysis.” When average annual ACA premium changes are cited, it is usually the same reported ASPE statistic that is referenced. So far, so good.
The problem is that this statistic is based on the “benchmark” second-lowest cost silver plan (SLCSP) in each market. That’s a logical unbiased foundation, as the SLCSP anchors the market, and premium subsidies are derived from income levels and the SLCSP premium. However, there are two concerns with this basis, the first meriting understanding and the second requiring a new baseline for measurement.
The Average Premium Measure
Before listing the concerns with the SLCSP basis, we should be grounded on the intention of publishing the premium change statistic and whether the public interpretation is properly understood. Intuitively, we interpret a 2% premium reduction to mean that consumers will pay 2% less to obtain similar coverage. This is not accurate for several reasons.
Notably, the majority of enrollees receive premium subsidies with contributions based on their income level; reduction in premium levels result in lower subsidies and no net premium change for enrollees in the benchmark plan. Enrollees in lower benefit plans nonintuitively pay a little more as gross premiums decrease, and enrollees in higher benefit plans pay a little less. In future years, most consumers will be in the former category as the benchmark plan increases will be higher than other plans. This dynamic is discussed later in this article.
The unsubsidized minority of the population does have a direct premium reduction with one caveat. Due to favorable changes in the 2018 ACA marketplaces, more insurers participated in 2019. As the average change statistic is based on the SLCSP and not changes in existing plan premiums, new lower-cost insurers reduce the “average”; for example, premiums could stay the same in a marketplace while a new insurer could drive a reduction in the SLCSP. This dynamic also adversely impacts subsidized enrollees by reducing premium subsidy levels.
Determining a precise average premium change in markets would be impractical given the membership weighting requirements, changes in benefits, and other factors. The results of using a simplified repeatable measure is informative, but observers should be aware of the inherent limitations.
Silver Plans are The Wrong Measuring Stick
What are the concerns with the SLCSP as the basis? First, silver plans are different than other metal level plans in two major respects. As mentioned, premium subsidies are calibrated on the SLCSP. The other difference is that only enrollees (below 250% of the Federal Poverty Limit) in silver plans are eligible for cost-sharing reduction (CSR) payments. For reasons beyond the scope of this article, these dynamics have created a competitive environment such that changes in silver plan premiums have not aligned with other metal level plan rates. Insurers compete for CSR-eligible enrollees with silver plans, and for other eligible enrollees with other metal levels (dramatically more so beginning in 2018).
The second concern with the SLCSP as a basis is more troubling. The benefits covered by the SLCSP changed in 2018. With President Trump’s October 2017 decision to defund reimbursements for CSR payments, SLCSP premiums were increased to reflect the higher benefits of these enrollees. In 2017, the SLCSP and other silver plans included a mix of enrollees with silver level benefits and platinum-level(silver plus CSR addition) benefits. Premiums reflected only the Silver-level benefits as costs for additional benefits were reimbursed by the federal government.
As SLCSP premiums were increased to incorporate the CSR defunding in 2018 and the expectation of enrollees without CSR benefits shifting to other plans, the change in the SLCSP premium obviously had no reflection on the change in market rates and no association with what consumers paid (except for unsubsidized enrollees who unwisely remained in a silver plan with inflated rates) in net premiums. Nevertheless, many commentators erroneously characterized the 37% increase in the SLCSP in 2018 with the suggestion that consumers would pay 37% more in 2018. The ironic reality of this matter is that the large boost in the SLCSP served to increase premium subsidies more than premiums in other metal levels, resulting in lower net premiums for subsidized enrollees. In summary, the SLCSP reported change of 37% in 2018 was grossly misleading as a premium change; in fact, the same ASPE landscape report indicates the resulting consumer benefit, 80% of exchange enrollees being able to obtain coverage for less than $75/month, up from 70% in 2017.
Is SLCSP Still A Bad Measuring Stick?
You may have thought through the 2018 disruption and rationalized “OK, 2018 was chaotic, but that was a one-time aberration, and changes in SLCSP premiums should closely align with the market going forward”. In fact, multiple health plan actuaries have communicated that thinking to me. It’s also the way I portrayed the 2% reduction in my article. HHS has also spoken positively of the result and has not sought to qualify it. In fairness, it’s the statistic that is familiar and easily accessible.
Here’s why it’s wrong: The inflation of the SLCSP rate change due to the CSR action in 2018 was not a one-time aberration. Perhaps it should have been, but it was not. Many insurers are slowly adjusting their silver premiums as their enrollment mix changes. A substantial number of enrollees without CSR eligibility have remained enrolled in silver plans. Naturally, insurers would expect migration to occur and silver premiums should incrementally increase each year at a higher level than the overall marketplace. One commentator characterizes the multi-year migration as “Silver loading is just getting started”.
Until the market reaches equilibrium, the change in silver premium rates will be larger than other metal level premium rates. Does this suggest that the rate decrease in 2019 was essentially larger than 2%? It certainly does, with the previously mentioned caveat that the return of insurers to the market likely skews the SLCSP premium rates downward.
In summary, the reported premium change of -2% in 2019 has two qualifiers. First, it is not a reflection of the rate change of current plans, but a reflection of the average SLCSP change in the market. Of course, these metrics could be the same in a static market. Second, silver plan rate changes should be higher than other metal levels in 2018, 2019 and going forward. As silver plans are the future market for CSR-eligible enrollees and other enrollees will gravitate toward other metal levels, silver premiums are a better representation of government subsidy payments, and other metal levels better reflect what consumers pay. The first challenge is difficult to reconcile. There is no need to change the methodology, if we are comfortable and clear what is being measured. The second challenge is at the heart of the intent of the measurement. If our goal is to understand consumer impact rather than federal government spending implications, we need to replace the SLCSP with a new measuring stick.
I propose that the lowest cost gold plan (LCGP) would be the best choice to replace the SLCSP as the base measure. Historically, bronze plans would have been a better selection as they have been the most popular with non-CSR eligible enrollees and have offered optimal consumer value. As most enrollees receive premium subsidies and subsidy levels have increased, many consumers are now eligible for free bronze coverage. While free coverage is attractive, it is the mathematical result of eligible subsidies exceeding the gross premium value and subsidies being capped. In these cases, consumer can access a larger premium subsidy and better value by selecting a gold plan.
There is a rational argument to select the average gold premium as the basis, but individual market consumers are price sensitive and gravitate to lower-cost options. The more important point is we need to move away from silver plan measurement if we’re interested in discerning consumer impact, rather than a statistic that is likely to be higher each year and bears no relation to what consumers pay.
Silver/Gold State Variations
Rate changes going forward will vary considerably by state. This is largely a function of the disparity of current metal level relationships across the country. In each state, bronze plan and gold plan rate changes should reflect a purer measure of claim cost changes. Silver plan rate changes will reflect similar claims cost changes as well as distributional changes as individuals not eligible for CSR benefits continue migration to bronze and gold plan designs. The convenience of automatic re-enrollment may slow this migration as many consumers do not properly examine premium relationships each year. Some states that are serious about optimizing federal subsidies may catalyze a quicker potential transition.
An oversimplification of market equilibrium is ‘lower premiums for gold plans b than silver plans’. In many states, silver plans inexplicably remain aggressively priced relative to other metal levels. As this matter is gradually corrected, silver plan premium changes will be inflated and will not reflect an appropriate measure to discern impact to consumers. In our analysis, about 20% of states have average gold premiums lower than silver premiums and about 20% of carriers’ premiums reflect the same. As silver premium increases are inflated until all states are at market equilibrium, more states will begin to reflect a long-term pricing balance.
A Nationwide Analysis
The Kaiser Family Foundation analyzed 2018 and 2019 metal level premiums for a major city in each state. A comparison included the lowest cost bronze plan (LCBP), the SLCSP, and the LCGP. In thirteen states, the 2019 LCGP is lower than the SLCSP. This is an increase from seven states in 2018. In the seven states where gold premiums are less than silver premiums in 2019 but not in 2018, the average SLCSP change was 8% (table below) while the average LCGP change was -16%. This illustrates a large differential between the SLCSP and LCGP premium changes as states move toward equilibrium.
As more states have a similar shift in future years and more non-CSR eligible enrollees shift from silver to gold coverage, continuing to report on average SLCSP changes will overstate the annual rate changes that are of relevance from a consumer’s perspective. The table also illustrates the favorable net premium environment (highlighted numbers) when net LCGP average premiums are less than net SLCSP average premiums. As more states move toward equilibrium with higher SLCSP premiums, net LCGP premiums will be significantly lower in these states.
Continued reporting of SLCSP premium changes without appropriate qualifications will likely cause confusion for enrollees and other stakeholders, and more importantly will not be representative of premium changes in the individual marketplaces.
|Year||Gold < Silver ?||% Change||2018 Gold Net Premium||2019 Gold Net Premium|
|2018||Pennsylvania||-27% / -4%||$105||$258|
|2019||Alaska, Delaware, Iowa, Montana, Nebraska, Oklahoma, Vermont||8%/ -16%||$243||$94|
|2018 and 2019||Hawaii, Kansas, Maryland, New Mexic, Rhode Island, Wyoming||1% / 2%||$155||$162|
|Neither||Remaining states and DC||0% / -1%||$282||$281|
Each year, ASPE reports marketplace trends including enrollment results, number of participating insurers, and premium rate changes. The ‘premium rate change’ has been developed by comparing the change in the SLCSP. Initially, this was a logical measure in the uninterrupted ACA framework. President Trump’s decision to defund CSR payments caused the SLCSP premiums and other silver plan premiums to increase to levels reflective of a mix of silver-level coverage and platinum-level coverage. As that transition is ongoing, a distributional shift of SLCSP enrollment to platinum-level coverage each year will require SLCSP premium changes that are larger than the actual market rates.
As Silver premiums were “loaded” in 2018 in most states, it is well understood that this measure was not an appropriate method to discern consumer impact in 2018. Reasonable minds discounted the 37% change due to the known aberration. It is less understood that this is statistic is also inflated in 2019 and future years.
A shift in basis to a different metal level plan (e.g. LCGP) to represent the average annual premium change would be a more appropriate ASPE communication to discern the consumer impact. ASPE should implement a reporting change in 2020, and ASPE should restate prior year results to the new measure if additional clarification is determined to be warranted. Stakeholders’ understanding will be enhanced by a reporting change that more accurately reflects the resulting premium changes in ACA individual markets.
ASPE leadership was provided a copy of this article before publication and declined comment.
At market equilibrium, Silver plan rate changes should align with the rest of the market. Greg Fann has advised states how to reach a beneficial market equilibrium sooner through stricter adherence to ACA guidance: https://axenehp.com/making-rate-review-great/. Greg is available to discuss strategic opportunities for state or discernment of ACA measures. He can be reached at firstname.lastname@example.org.
CSR-eligible enrollees with incomes below 200% of the Federal Poverty Level receive near Platinum-level benefits. CSR-eligible enrollees with incomes between 200% and 250% of the Federal Poverty Level receive near Silver-level benefits. Many eligible enrollees in the latter group find the net premium differential in other metal levels more attractive than the CSR benefit in Silver plans.
Changes in gross premiums for other metal levels do not capture the subsidy-based real consumer impact, but they provide a better measure for changes in market premium rates.
In reality, Silver plan premium increases actually lower net premiums for subsidized enrollees.
About the Author
Greg Fann, FSA, FCA, MAAA, is a Consulting Actuary with Axene Health Partners, LLC and is based in AHP’s Temecula, CA office.