In October 2017, President Trump announced that the administration would immediately stop reimbursing health insurance companies for providing legally required discounts on deductibles and other out-of-pocket costs on Marketplace plans to eligible enrollees. The cancellation of payment for these consumer subsidies—known as cost-sharing reductions (CSRs)—came less than three weeks before the Open Enrollment period for 2018 coverage was slated to begin. However, insurers, state regulators, and advocates had prepared for the scenario, devising a strategy known as “silver loading” to mitigate market instability and harm to consumers.
In this brief, we examine the impact of that strategy and find that North Carolina Marketplace enrollees on the whole have benefited from silver loading. As a result, we recommend that North Carolina regulators and health plans adopt a modified silver loading approach for setting 2019 premiums.
Our analysis finds that, after NC Marketplace plans loaded CSR-related premium increases onto silver plans:
- Take-up of cost-sharing reduction plans with the greatest consumer protections remained strong among eligible North Carolinians—those with incomes up to 200% of the federal poverty level (FPL).
- The increased value of the premium tax credit enabled more consumers, especially those with incomes between 200-400% FPL, to purchase gold plans than in 2017.
- Enrollment by North Carolinians who do not qualify for subsidies—mostly middle-income folks—remained steady from 2017 to 2018.
Cancellation of Federal Payments for Cost-Sharing Reductions by Trump Administration
Under the Affordable Care Act, consumers can qualify for financial assistance to not only lower their monthly premiums, but also to reduce out-of-pocket costs they face when using their health insurance. The latter benefit, known as cost-sharing reductions, comes in the form of reduced deductibles, annual out-of-pocket maximums, copays, and coinsurance costs. Marketplace insurers provide these discounted plans to eligible consumers who select silver plans, and the federal government makes regular payments to insurance companies as a reimbursement for the costs they incurred as a result of providing a more generous plan without increasing the premium. (For more background on the cost-sharing reduction benefit, see the Appendix at the end of this brief).
Under the leadership of former Speaker John Boehner (R-OH), the House of Representatives brought a 2014 legal challenge to the Obama administration’s compensation of insurers for CSRs on the grounds that Congress did not appropriate the payments. In 2016, the U.S. District Court for the District of Columbia granted a summary judgment in favor of the House, but the payments were allowed to continue pending appeal. Following the 2016 election, the Republican-led House of Representatives requested a stay of legal proceedings, in effect granting the Trump administration leeway to cut off payments for CSRs.
Throughout the unsuccessful 2017 campaign to repeal the Affordable Care Act, President Trump repeatedly threatened to let the ACA “implode.” He tweeted often about ending “bailouts” for insurance companies—his mischaracterization of how insurers were compensated for providing CSRs—throughout the process, especially when legislative repeal efforts were faltering. Once the repeal-and-replace effort died off, the Trump administration pulled the plug on the reimbursements for CSRs. While that decision finally came in mid-October, stakeholders across the country had been discussing how to plan for this possibility months in advance. Although Open Enrollment for Marketplace plans begins annually in November, the premium-setting process starts much earlier. Insurance companies begin developing products and prices earlier in the year, usually with an initial proposed filing to state regulators in the spring and final rates in the fall.
Silver Loading Response in the States
While several analyses predicted that cutting odd CSR payments would cause insurers to significantly raise premium rates, a strategic approach to raising rates arose in which insurers increase premiums only on silver plans rather than spreading the costs of lost CSR payments across all plans.
Roughly two-thirds of states took this approach, which we refer to as “silver loading.” The conceptual advantage to this approach is that consumers—particularly those who do not qualify for premium tax credits and therefore pay full-cost premiums—would be protected from CSR-related premium increases, especially for bronze, gold, and platinum plans (though platinum was not offered on the Marketplace by any insurer in North Carolina). What’s more, consumers who do qualify for premium tax credits would also benefit, as the cost of the benchmark plan (the second-lowest cost silver plan) would increase relative to the costs of other plans available, meaning that the premium tax credit would provide consumers with greater purchasing power. This purchasing power would particularly benefit consumers purchasing bronze and gold plans unaffected by the premium increases associated with silver loading.
While the North Carolina Justice Center advocated for silver loading in mid-2017, we had some concerns that it would inflate premium tax credits in such a way that encouraged consumers with incomes below 200% FPL—who would normally enroll in silver level plans with robust cost-sharing— to instead enroll in a high-deductible but low-premium (if not $0/month) bronze plan. Because CSR plans provide lower out-of-pocket costs and cap enrollee spending at lower out-of-pocket maximums, we want to ensure consumers are taking advantage of such plans. Higher actuarial value plans provide greater protection against unexpected medical diagnoses and emergencies, helping to keep North Carolinians out of poverty or from falling deeply into debt.
Based on available information, we believe both Cigna and Blue Cross Blue Shield of North Carolina incorporated a silver loading strategy for their 2018 individual market premiums. Other states also adopted a modified silver loading strategy in which insurers would provide an additional silver plan una ected by silver loading offered outside of the Marketplace; this would, in effect, provide a more affordable silver plan option for consumers who do not qualify for premium subsidies.
While the full ramifications of these decisions are not yet known, the federal Centers for Medicare and Medicaid Services released data on April 3, 2018, about enrollment from the 2018 Open Enrollment period (OEP). The individual market experiences churn in its enrollee population every year, so comparing year-to-year trend comes with caveats. However, by examining the 2018 OEP State State-Level Public Use File and comparing it to last year’s data, we can deduce how silver loading may have affected North Carolinians’ enrollment decisions, particularly whether those eligible for the most robust CSR plans still took advantage of them.