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“Silver loading”

I did not know this.

Sen. Nathan Johnson

The latest state to take strong action to improve affordability in its ACA marketplace is … Texas?

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But let me explain some background details first. Below 200 percent of the federal poverty level (that is, $25,760 for an individual or $53,000 for a family of four in 2022), benchmark silver plans on the exchanges are both very cheap—costing nothing up to 150 percent of FPL, and just 0 to 2 percent of income between 150 and 200 percent of FPL—and further enhanced with cost-sharing reduction (CSR) subsidies, which make them roughly equivalent to platinum plans.

At incomes over 200 percent of FPL, however, the marketplace’s offerings will be greatly improved by Texas’s new state-enforced pricing regime.

More than two-thirds of Texas enrollees in ACA plans (69 percent) have incomes below 200 percent of FPL. But thanks to the more generous subsidies created last March through 2022 by the American Rescue Plan—which removed the prior income cap on subsidy eligibility—2022 enrollment in Texas grew fastest at higher incomes. Enrollment at incomes over 200 percent of FPL rose 57 percent, to 566,000. Those enrollees stand to gain most by the change in law. At higher incomes, silver plan deductibles average over $4,500 (though many services are not subject to the deductible). Gold plan deductibles, by contrast, average $1,600.

So if gold plans have lower deductibles, why should they be cheaper than silver plans? As mentioned above, for low-income enrollees, CSR raises the value of silver plans (by reducing out-of-pocket costs) to a roughly platinum level, with average deductibles under $200 for the lowest-income enrollees and $800 at the next level (150 to 200 percent of FPL). In Texas, 89 percent of silver plan enrollees have incomes below 200 percent of FPL, and so the average silver plan sold in the state really does match a platinum-level “actuarial value,” or the percentage of the average enrollee’s costs the plan is designed to cover.

During the Obama administration, the federal government reimbursed insurers directly for providing CSR, and silver plans were priced as if no CSR were attached. When Trump abruptly cut off those direct CSR payments in October 2017, however, almost all state regulators responded by allowing or encouraging insurers to price the value of CSR directly into silver plans—a process that came to be known as “silver loading.”

Here’s where the quirk comes in. Because ACA premium subsidies, designed so that the enrollee pays a fixed percentage of income, are set to a silver plan benchmark (specifically, the second-cheapest silver plan), higher silver premiums mean higher premium subsidies across all plans—and discounts for subsidized buyers in bronze and gold plans.

But silver loading has stopped halfway. As the author of the “focused rate review” bill, Texas state Sen. Nathan Johnson, points out in the bill analysis, “insurers have not approached silver loading in a uniform manner. The resulting misalignment of premiums has caused Texans to lose out on hundreds of millions of dollars in federal marketplace subsidies, making coverage less affordable.”

Why? Since a majority of marketplace enrollees have incomes below 200 percent of FPL, silver is still the most popular metal level, and so when insurers are in a competitive market, the price of a silver plan gets competed down (though when there is just one insurer, or a dominant insurer, they can and do take advantage of the rules, often to create huge discounts).* In most of the country, gold plans are still priced well above silver, and bronze plan discounts are not as big as analysts (including the Congressional Budget Office) expected them to be when anticipating Trump’s cutoff of direct payments for CSR. A handful of states, however, have effectively ordered insurers to fully price the value of CSR into silver plans.

With Johnson’s bill, Texas joined them. S.B. 1296 directed the Department of Insurance to, as the bill analysis phrases it, “focus its rate review in a manner that uniformly maximizes the benefits of silver loading, making coverage more affordable.”

On March 28, the Texas Department of Insurance issued a proposed rule to flesh out that legal directive. The rule directs insurers to use a “CSR pricing factor” of 1.35—that is, to price silver plans at 1.35 times what they would charge if there were no CSR. That rule effectively prices silver plans close to a platinum level. Gold plans are generally priced at about 1.2 times the cost of silver with no CSR.

The CSR pricing factor is slightly below the level implemented in 2022 in New Mexico, 1.44, which led to the lowest-cost gold plan in each rating area being priced an average of 11 percent below the benchmark silver plan. In New Mexico markets, several gold plans are priced below benchmark. Accordingly, in 2022, 69.5 percent of New Mexico enrollees with incomes above 200 percent of the federal poverty level chose gold plans, compared to 24.4 percent of Texas enrollees above the same threshold.

The rest of the story is about how momentum for this idea came from a couple of conservative actuaries plus a former aide to Greg Abbott now working at the non-partisan think tank Texas 2036, who were able to get Republican buy-in for the idea, and the House sponsor for Sen. Johnson’s bill, Rep. Tom Oliverson. The details are wonky and I definitely don’t understand all of them, but the bottom line is that in Texas another 200,000 people now have access to affordable heal insurance. And the guy that wrote the bill to make it happen is the guy that escorted the vile Don Huffines out of the Senate in 2018. Not too shabby. Charles Gaba, who brings even more wonkiness, has more.

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2 Comments

  1. Ginger Stampley says:

    That’s my state Senator and I’m really delighted with him.

  2. Joel says:

    “Below 200 percent of the federal poverty level (that is, $25,760 for an individual or $53,000 for a family of four in 2022), benchmark silver plans on the exchanges are both very cheap—costing nothing up to 150 percent of FPL, and just 0 to 2 percent of income between 150 and 200 percent of FPL—and further enhanced with cost-sharing reduction (CSR) subsidies, which make them roughly equivalent to platinum plans.”

    this is not entirely correct. if you make so little money that the US government considers you eligible for medicaid, then you cannot get the ACA silver subsidies, even if texas refuses to let you get medicaid. so the subsidies are only for those who make under X … but not below Y. including unemployed persons, to name an example from my own personal experience.

    because medicaid. but texas.