Editor’s Note: After the Trump administration announced an end to cost-sharing reduction subsidies last October, Oliver Wyman Actuaries predicted soon after that more free Bronze Affordable Care Act Plans would emerge in time, especially given their earlier Wall Street Journal analysis of 2018’s rise in free consumer health insurance. This prediction is now reality. These experts also predicted one of the best ways to manage unfunded cost-sharing reduction subsidies was on-Exchange silver loading – an approach that many states allowed. This work demonstrated silver loading was a more advantageous option compared to loading all plans to maintain member loyalty. Below, we continue this cost-sharing reduction discussion onward.
In response to the administration’s decision to not fund cost-sharing reduction payments in 2018, issuers needed to increase premiums to offset the loss of this funding. State regulators took essentially one of four different approaches, described below. In our view, this “controlled experiment” confirms the operation of the invisible economic hand, even in highly regulated health insurance markets, and provides a set of observation points on price sensitivity in health insurance markets that are worth consideration from both regulators and issuers, including those considering implementing Section 1332 waivers.
CSR Funding Now a Thing of the Past
The Affordable Care Act (ACA) included a number of provisions to enhance the affordability of health insurance for individuals at lower income levels. These benefits were only available on coverage purchased through the Exchanges, and included both the Advanced Premium Tax Credits (APTCs) to reduce monthly out-of-pocket premium costs, and the Cost Share Reduction subsidies (CSRs) whereby health plan issuers reduce out-of-pocket payments for their lowest-income insureds and would receive offsetting payments from the federal government. Despite the ACA not explicitly appropriating funding for CSRs, health plan issuers were able to recover these amounts from the federal government from 2014 through 2017. However, in early 2017, the incoming administration announced health plans would no longer be able to recoup CSR payments from the federal government without an appropriation. On October 12, 2017, the Trump administration officially ended CSR payments.
Opportunity for State Experimentation
In response to a lack of federal funding, issuers needed to incorporate this additional cost into their premiums. State regulators had some flexibility while guiding their issuers on how to approach rating CSR-associated costs within premium rating constraints imposed by the ACA. This resulted in a wide variation of approaches (even within states), with some States allowing for a load on on-Exchange silver plans, and other states requiring a broad-based loading across all plans.
Oliver Wyman’s 2018 Enrollment Observations
Oliver Wyman previously estimated the potential impacts of non-funding of CSRs on APTCs (which are determined from the second-lowest cost on-Exchange silver plan), including the impact to Federal spending and the availability of low-cost/no-cost bronze plans. With the conclusion of open enrollment, we were interested to see whether there were observable differences across geographies implementing different approaches.
In the analysis that follows, each state was assigned to one of four specific implementation approaches:
- AP: Premium load applied to all plans
- AS: Premium load applied to all silver plans, on and off the Exchange
- OES: Premium load applied to on-Exchange silver plans only
- MIX: Different issuers in the market implemented different strategies
Enrollment results were compared across these approaches. While not a statistically rigorous analysis, the results suggest pricing approaches have an observable impact on market composition. We would further note that data on off-Exchange enrollment is generally not available, which limits the analysis, especially for those individuals not eligible for APTCs or CSRs.