The potential nonpayment of cost-sharing reduction (CSR) subsidies to health insurers, as required by the Patient Protection and Affordable Care Act (ACA), could create instability in the individual market. Issuers are now contemplating their exchange participation plans for 2018, and the future of cost-sharing reductions will play a key role in their decisions. This report by Milliman’s Pedro Alcocer, Frederick Busch, and Jason Karcher explores the possible legislative and regulatory outcomes and potential issuer responses.
The Patient Protection and Affordable Care Act (ACA) established different metallic tiers—bronze, silver, gold, and platinum—that convey benefit richness. These tiers are assigned using the Actuarial Value Calculator (AVC), while costs are determined by an insurer’s pricing model, creating a potential disparity between how a plan is marketed and its actual richness. Milliman actuary Pedro Alcocer highlights the issue in his article “Actuarial value, benefit richness, and the implications for consumers.”
Here is an excerpt:
Although the AVC is the official HHS tool for designating a plan’s benefit richness for the purpose of helping consumers make informed purchasing decisions, carriers generally do not use the Actuarial Value Calculator to determine a plan’s benefit richness for pricing purposes. Rather, carriers use pricing models with data that is either representative of their own experience, or has been adjusted to reflect their unique single risk pool characteristics….
Our analysis showed that roughly half of all plans tested had a benefit richness value outside the designated AV ranges. This means that a significant number of consumers may be unknowingly purchasing plans with actuarial values that when measured with the pricing model are outside the AVC ranges. Consequently, two plans that are supposedly equivalent and comparable (e.g., two silver plans) may not be so equivalent in reality. In the absence of this information, consumers may not be making the most informed choices when shopping for plans in the market places….
Furthermore, along with the annual limitations on the maximum out-of-pocket amount, the AVC places restraints on the plan designs that carriers can offer… The nature of the AVC combined with the annual limitation on the maximum out-of-pocket amount makes it very difficult to create bronze plan designs with copays on select services. The lower the AV, the less flexibility carriers have in creating plan designs that pass the AVC test. This means fewer choices for consumers, as there appears to be less diversity of plan designs at the lower AV levels.
In the article, Pedro also offers a potential solution centered on a two-tier scheme to increase the plans carriers can offer under the ACA.
Ultimately, the only metallic tier that matters for subsidy purposes is the silver tier. A way to restore choices to pre-ACA levels would be to simply have two plan tiers: eligible for subsidies and not eligible for subsidies. Plans eligible for subsidies would essentially replace the current silver tier, and would be used to determine the second-lowest plan in this category for the purpose of determining the advanced premium tax credit. Furthermore, only plans that pass the designated AVC subsidy range (either the current silver range or something else) would be eligible for cost share reduction subsidies. Any other plan outside the subsidy-eligible AVC range could still be offered in the marketplaces as long as it stays within a defined global range of permissible AVC values (0.55 to 0.95 for instance). Carriers would then be required to publish each plan’s benefit richness using a common measure among all carriers instead of using the current metallic tiers to identify a plan’s perceived level of coverage.