Silver Loading: Impact on 2019 Premiums

A decision by the Trump Administration to stop reimbursement for the cost-sharing reduction (CSR) subsidy available for eligible persons who sign up for Silver plans on the exchanges is reshaping the individual market.

If it was expected that eliminating the CSR payment would decrease enrollment on the exchanges, that expectation has not materialized. Numbers recently released from the Centers for Medicare & Medicaid Services (CMS) show that nearly 11.8 million people signed up for or were automatically enrolled in health insurance through the 39 federal exchanges and 12 state-based exchanges. This is a decrease of about only 3.3% from 2017 enrollment of 12.2 million.

Given the elimination of the CSR payment, which many thought would contribute to destabilizing the individual market, the unexpected comparable enrollment between 2017 and 2018 is a sign that the market is and has adjusted to the lack of reimbursement for a major subsidy offered through the ACA.

Not only has the market adjusted, it has capitalized on these changes. Insurers have done so by participating in a practice dubbed “silver loading”—increasing government subsidies by inflating the cost of silver plans. 

Although only preliminary data are available to show how silver loading affected the individual market in 2018, some trends are emerging and from these some predictions can be made on how silver loading may affect the way in which plans set their 2019 premiums.

Silver Loading

“Silver loading is one way that health plans responded to the withdrawal of the cost-sharing reduction payments by the Trump Administration,” Melissa Andel, MPP, vice president of Health Policy, Applied Policy, told First Report Managed Care. 

Silver loading is a method in which plans make up for the lack of reimbursement of the CSR subsidy by increasing the cost of the premiums on the plans for which the CSR is offered—that is, silver tier ACA plans. 

“When a plan uses a ‘silver-loading’ strategy, they are simply building the extra costs of the cost-sharing reduction payments into the premium for the plan. It is a rational response to government policy by a plan,” said Ms Andel. “Premiums are determined in part by the amount of money that a plan is expecting to pay out over the year, and now plans have to offer cost-sharing reductions and will no longer be reimbursed on the back end from the federal government. So there is really no other choice than to increase premiums to cover those costs.” 

In 2017, 75% of people who signed up for health coverage on the exchanges signed up for Silver plans. People eligible for the CSR are those with incomes at 200% or below the federal poverty limit. 

Along with increasing premiums on Silver plans, silver loading also affects another subsidy—the premium tax credit—offered through the ACA to people who earn up to 400% of the federal poverty level. The value of the premium tax credit is tied to the cost of the second cheapest Silver plan in a geographical area. People who qualify for the premium tax credit do not pay more than 9.5% of their household income for their premiums. The unintended consequence of this is that the value of the tax credit has shot up as a result of silver loading, giving some Americans more purchasing power. 

“When you silver load, it raises the benchmark premium which makes a lot more plans under that premium cheaper for subsidized buyers,” David Anderson, MS, research associate at the Margolis Center for Health Policy, Duke University, said in an interview. 

According to Mr Andrerson, what silver loading has done is shift the market toward more people moving from Silver plans to either Bronze or Gold plans. 

Effect on the Market

In a preliminary analysis of how elimination of the CSR payment shaped enrollment in the individual market exchanges in 2018, Mr Anderson said that despite the increased price of Silver plans relative to Bronze and Gold plans due to silver loading, the increases to the tax credit actually provided a higher subsidy to people that allowed them to move from Silver into either Bronze or Gold plans. 

Citing data from the federal government, he said that “80% of all consumers could buy a [Bronze] plan for less than $75 per month after premium subsidies, a 9-point gain compared to 2017.”

Some consumers can also move to Gold plans for cheaper than a Silver plan, Mr Anderson added. When looking just at the exchanges offered through the federal government (healthcare.gov), he roughly estimated that about half of the Gold plan market share can be predicted solely by the price gap between the least expensive Gold plan and the least expensive Silver plan. 

Article continues on page 2

“As the gap gets bigger or as the Gold plan gets cheaper relative to the Silver plan, more people buy Gold,” he said.

Although firm numbers are not yet available regarding those who shifted to other tiered plans because of silver loading in 2018, recent data by CMS show that 85% of consumers buying insurance on the federal government exchanges receive a tax credit and that tax credit covers, on average, about 86% of the enrollee’s total premium.

The effect this may be having on people switching plans is suggested by data showing that enrollment in Silver plans dropped by 4% in the states that silver loaded through the federal exchange.

Of particular emphasis, Mr Anderson said, is the wild variation among switching behavior in enrollment among the states in the federal exchange. Citing Pennsylvania as an example, he said that 62 of 67 counties saw very aggressive shifts in consumers moving from Silver into either Bronze or Gold plans. The gold market share is at least 30% in these counties, he said, and over 55% in some counties.

To date, no information is yet available on the populations of people who shifted out of Silver plans and into other tiered plans. 

“We know there are still about 12 million people on the individual market, but are they the same people that were in the market last year or are they different,” Ms Andel explained. “Is this going to influence decisions to stay in the market beyond 2018? We still don’t know if plans are just going to walk away from the individual market.” 

Going Forward: 2019 Premiums

Plans will be submitting their 2019 premium rates within the next few months, and although nothing is yet known for sure what these rates will look like, some predictions can be made based on what happened in 2018. 

Matt Fiedler, PhD, a fellow at the USC-Brookings Schaeffer Initiative on Health Policy, Brookings Institute, said he does not see any significant changes from 2018 in the states that have already implemented silver loading. 

“I expect that all or almost all states that silver loaded in 2018 will do so again in 2019,” he said.

This means that most states should not expect to see much of a change. According to Mr Anderson, 46 states adopted some kind of silver loading in 2018. 

Dr Fiedler expects the few states that did not implement silver loading in 2018 to feel the most effects of silver loading on 2019 premiums. 

“That means the impact of silver loading for most states seems like it will be relatively small,” he said.

Both Dr Fiedler and Mr Anderson suspect that the few states that did not silver load in 2018 will do so in 2019. Among the 7 states (Delaware, Vermont, North Dakota, West Virginia, Indiana, Oklahoma, and Colorado) that did not silver load in 2018, Colorado has already “indicated that it plans to convert to silver loading in 2019,” Dr Fiedler explained.

Mr Anderson agrees, but with a slight caveat – “assuming that CMS still allows silver loading,” he said. Although he said CMS could change the rules to prevent or discourage silver loading, he does not know if they will. 

Dr Fielder is skeptical. “CMS has made noises that it is reviewing silver loading, but I think there are real questions about what it can do, certainly for 2019,” he said. “Another reason for skepticism is that silver loading has generally worked out fairly well for consumers, both subsidized and nonsubsidized, and all the alternative are worse for both groups.”

The Future of CSRs

Dr Fiedler also does not see Congress passing any legislation to reinstate the CSR payment, something considered initially for inclusion in the annual funding bill for the government but was not included. 

“I think legislation is unlikely to be passed this year,” Dr Fiedler explained, adding that disagreements that derailed inclusion in the original legislation still have not been resolved and there is no obvious vehicle for the legislation to travel on. “I think [legislation on this] is unlikely to be passed on a stand-alone basis,” he said.

Not reinstating the CSR payments will be costly for the federal government as a result of silver loading. During a presentation at AMCP Nexus in October, Ms Andel said that scrapping the CSRs could cost the government upward of $200 million over the next 10 years. 

Without legislation to reinstate CSR payment or an outright CMS ban on silver loading, it is expected that silver loading will continue and expand into most states. 

“Presuming that silver loading continues to cover the liability for the cost-sharing reduction, the tax credit will remain high and that will continue to cost extra money for the federal government,” Ms Andel noted. “Because the premium tax credits run as an entitlement, like Medicare, Medicaid, and Social Security, Congress can’t stop the money that gets spent on these tax credits unless they change the law.”

She concluded that the federal government is “sort of in a mess, trying to figure out how to get themselves out of the increased payments without upsetting their constituents.” 

For articles by First Report Managed Care, click here

To view the First Report Managed Care print issue, click here