Silver Loading and Your Health Insurance Premiums

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On October 12, 2017, less than three weeks before the start of open enrollment for 2018 health plans in the individual market, the Trump administration announced that funding for cost-sharing reductions (CSR, sometimes referred to as cost-sharing subsidies) would end immediately.

People who buy health insurance in the individual/family market were understandably anxious about the announcement, wondering whether their coverage and/or subsidies would continue to be available.

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But nothing has changed about the availability of CSR benefits; health insurance exchange enrollees who are eligible for CSR benefits are continuing to receive them. And in most states, premium subsidies (the other type of subsidy created by the Affordable Care Act) are a lot larger than they would have been if CSR funding hadn’t been eliminated. Some enrollees have found that their health insurance coverage is much more affordable as a result.

For 2019, those larger premium subsidies became even more widespread, making coverage more affordable for even more people. The two types of subsidies—CSR and premium subsidies—are often confused, but the federal government has not stopped paying premium subsidies.

And the combination of the lack of federal CSR funding and the American Rescue Plan’s premium subsidy enhancements have resulted in particularly large premium subsidies for 2021 and 2022.

Let’s take a look at what has happened with the CSR situation and what enrollees can expect going forward. First and foremost, all of this takes place in the context of the individual insurance market, where fewer than 15 million Americans obtain their health coverage. If you get your coverage from your employer, or from Medicare or Medicaid, the CSR funding issue does not affect your health insurance.

Cost-Sharing Reductions

The most important thing to understand is that CSR benefits are still available. As of February 2021, there were 11.3 million people enrolled in private health insurance plans through the exchanges in the United States, and 48% of them were benefitting from CSR, with lower out-of-pocket costs than they would have without CSR.

Eighty-six percent of exchange enrollees qualifed for premium subsidies at that point, but those are not the same thing as CSR (note that even more people qualify for premium subsidies now that the American Rescue Plan has been implemented). Premium subsidies lower the amount that you have to pay each month to have your coverage, while CSR lowers the amount that you have to pay when you need to use your health insurance to pay for health care.

More people receive premium subsidies than receive CSR. This is because CSR is limited to people with household income that doesn’t exceed 250% of the poverty level (premium subsidies are available well above that income level) and because CSR is only available on silver plans, while premium subsidies can be used for bronze, silver, gold, or platinum plans.

Despite the fact that the Trump administration cut off funding for CSR, nothing has changed about eligibility for CSR or premium subsidies. Both continue to be available to all eligible exchange enrollees.

The funding cut was announced on October 12, 2017, but insurers in the majority of the states had already based their 2018 premiums on the assumption that funding was going to be cut. And insurers in some other states were given a short window during which they could refile rates with the cost of CSR added to the premiums. This helped to prevent insurers from exiting the market, since they could offset the lack of federal CSR funding with higher premiums, most of which are covered by larger premium subsidies.

Silver Loading

When insurers were creating their rates for 2018 plans, the issue of CSR funding was very much up in the air. States and insurers weren’t sure what would happen and didn’t have any federal guidance to rely on, so state insurance regulators and insurers worked out various solutions.

A handful of states either didn’t allow insurers to add the cost of CSR to premiums at all or required them to add it uniformly to premiums for all plans (a total of seven states and DC elected one of these two approaches). The rest of the states either allowed or required insurers to add the cost of CSR only to silver plan premiums (ie, “silver loading”) since CSR benefits are only available on silver plans.

But even within the group of states that silver loaded, there were differing approaches. Some directed insurers to add the cost of CSR to all silver plans, including those sold outside the exchange, while others directed insurers to only add the cost of CSR to on-exchange silver plans. Some states encouraged insurers to create new off-exchange-only silver plans (ie, policies that are only sold outside the exchange) that could be sold without the cost of CSR being added to their premiums.

For 2018, it mostly worked out well. Enrollment remained stable, and people in many parts of the country found that they could obtain free or nearly-free bronze plans and bargain-priced gold plans due to the larger premium subsidies that resulted when the cost of CSR was added to silver plan premiums (premium subsidy amounts are based on the price of a silver plan, so higher-priced silver plans result in larger premium subsidies).

In early 2018, there were concerns that perhaps the federal government would prohibit silver loading in future years. The larger premium subsidies mean more government spending, so it was a legitimate concern that perhaps the government might step in to prevent this.

CMS was initially cagey in their replies to questions about silver loading, but then-Secretary of HHS, Alex Azar, confirmed in Jun 2018 that insurers could continue to use silver loading for 2019. But his remarks, delivered during a House Committee hearing, left the door open for potential future regulation that could limit the ability of insurers to use silver loading in subsequent years.

But later that year, HHS issued guidance that encourages states to allow insurers to add the cost of CSR only to on-exchange silver plans. And that has continued to be the case ever since.

Silver loading is the best approach in terms of protecting consumers, for several reasons:

  • It results in the largest possible premium subsidies, since the full cost of CSR is spread across only the on-exchange silver plan premiums, resulting in higher prices for those plans and correspondingly larger premium subsidies.
  • People who qualify for CSR continue to receive those benefits, and their premiums are offset by premium subsidies (people who qualify for CSR virtually always qualify for premium subsidies as well).
  • People who qualify for premium subsidies but not CSR can purchase bronze or gold plans at a significant discount because the larger premium subsidies can also be applied to plans at other metal levels, even though those plans’ premiums don’t include the cost of CSR.
  • People who don’t qualify for premium subsidies can purchase a non-silver plan, or a silver off-exchange plan, and avoid having to pay the CSR surcharge in their premiums (fewer people are ineligible for subsidies now that the American Rescue Plan has been implemented; this will continue to be the case at least through the end of 2022, and possibly later if the provisions are extended by Congress).

Premiums

Average individual market premiums have been higher since 2018 than they would have been if the federal government had continued to fund CSR. The direct impact has been concentrated on silver plans in most states, and is mostly being covered by the federal government in the form of larger premium subsidies.

With the revised rates that were filed later in the summer, insurers were increasingly opting to assume that CSR funding simply would not continue and were pricing their plans accordingly. The Trump Administration didn’t officially eliminate CSR funding until October 2017, but President Trump had hinted throughout the summer that the funding could be cut off, making insurers understandably apprehensive during the rate filing process.

For 2018, sharp premium increases—mostly on silver plans—were necessary in most states to cover the cost of CSR. But for 2019, rate increases were much less significant—with single-digit increases in most states. That’s because they were relative to the 2018 rates, which already included the increase to cover the cost of CSR. So that was already baked into premiums in nearly every state, and the increase for 2019 just continued the status quo in terms of covering the cost of CSR (there are other factors that drove the rate hikes for 2019, but they were not as significant as the factors that were at play for 2018 rates).

And for 2019, even more states and insurers opted to add the cost of CSR only to on-exchange silver plans. Vermont, for example, didn’t allow insurers to add the cost of CSR to premiums for 2018, but began allowing them to add it only to on-exchange silver plans for 2019. Colorado, which required insurers to spread the cost of CSR across premiums for all plans in 2018, directed insurers to add the cost of CSR only to on-exchange silver plans starting in 2019.

And in some of the states where the cost of CSR was added to all silver plan premiums for 2018, it began to be concentrated on only on-exchange silver plan premiums for 2019, with lower rates for off-exchange silver plans.

For 2020 and 2021, states and insurers mostly continued the same approach they used for 2019. For 2022, West Virginia has joined the majority of the states in having insurers add the cost of CSR to silver plan premiums. Indiana and Mississippi are the only states that still require insurers to spread the cost of CSR across plans at all metal levels as of the 2022 plan year. (District of Columbia insurers are not adding the cost of CSR to their plans, because DC has very few enrollees who receive CSR benefits.)

Average rate increases since 2019 have continued to be quite small, despite the inclusion of the cost of CSR in premiums That’s because the rate changes are always relative to the previous year’s rates, and the cost of CSR has been incorporated into the rates since 2018.

Premium Subsidies

Premium subsidies are based on the cost of the second-lowest-cost silver plan (the benchmark plan) in each area. The idea is that the subsidy amount brings the cost of that silver plan down to a level that’s considered affordable. So when silver prices increase disproportionately in comparison to the rates for non-silver plans (which is what happens when the cost of CSR is added only to silver plan prices), the premium subsidies also end up disproportionately large.

When “broad loading” (i.e. spreading the cost of CSR across the rates for all plans—an approach that’s still required in Indiana and Mississippi) is used, it results in larger premium subsidies, since the silver plan rates do increase to reflect the CSR load. But since the rates of all the other plans also increase due to the added CSR load, the silver plan rates aren’t disproportionately high compared with the other plans’ rates, and the larger premium subsidies only serve to offset the higher rates.

In other words, people in “broad load” states don’t end up getting the sort of amazing discounts on bronze and gold plans that we see in some of the areas where silver loading is used.

But silver loading is the most common approach that insurers in most of the country have used since the federal government stopped reimbursing them for the cost of CSR. In states where silver loading is used (especially if it’s on-exchange-only silver loading), enrollees who receive premium subsidies will generally find that their after-subsidy cost for a bronze plan is less than it would have been before 2018. And in many areas of the country, enrollees who receive premium subsidies can buy a gold plan for less than the cost of some silver plans, after the premium subsidy is applied.

This is all due to the disproportionately large premium subsidies that result when the cost of CSR is added to silver plan premiums. And as noted above, the American Rescue Plan has made subsidies even larger for 2021 and 2022, further improving the affordability of marketplace health plans for most enrollees.

According to an August 2017 Congressional Budget Office analysis of the effect of cutting off CSR funding, the federal deficit will increase by $194 billion over the next ten years, due to the larger premium subsidies and the increased number of people who would qualify for premium subsidies.

Open Enrollment

As a result of the elimination of CSR funding, premium subsidies are larger than they would otherwise be in most states, and that will continue to be true in 2022, especially with the American Rescue Plan in place.

But the result is that consumers need to be particularly careful in picking their health plan during open enrollment. Relying on auto-renewal is never a good idea, and that’s especially true now that silver loading has become the norm.

There will continue to be a few areas where the cost of CSR is added to plans at all metal levels and premium subsidies are not disproportionately large. There are also states where different insurers take different approaches. But in most cases, the higher premiums to cover the cost of CSR are limited to silver plans.

Here’s what you need to know when you’re shopping for coverage this fall, whether you’re renewing your current plan or shopping in the individual market for the first time:

For people who get premium subsidies, the subsidies will offset all or most of the premium increase. There is no income cap for premium subsidy eligibility in 2022 (the normal income cap was temporarily eliminated by the American Rescue Plan). Most enrollees do qualify for premium subsidies.

It is important to comparison shop during open enrollment. CSR is only available if you pick a silver plan, but CSR is also only available to people with income up to 250% of the poverty level (for 2022 coverage in the continental U.S., that’s $32,200 for a single individual, and $66,250 for a family of four; the prior year’s poverty level guidelines are always used). If you’re eligible for CSR, particularly if your income is below 200% of the poverty level, you’ll probably want to select a silver plan so that you can get the benefits of CSR.

However, if you’re not eligible for CSR but you are eligible for premium subsidies (i.e. your income is above 250% of the poverty level, but not so high that the benchmark plan isn’t more than 8.5% of your income), you might find that a bronze or gold plan will offer the best value for 2022.

That’s because the premium subsidies are based on the cost of a silver plan, which will be higher than it would have been if CSR funding had continued. But those premium subsidies can then be used to purchase plans at any metal level—not just silver plans. That makes the bronze and gold plans (and platinum plans, in areas where they’re available) a relatively better value after the application of the premium subsidy.

In some cases, silver plans are actually more expensive than gold plans. This will make gold plans a clearly better value for people who don’t get CSR, since the benefits of gold plans are more robust than the benefits of non-CSR silver plans.

For people who don’t get premium subsidies, it will be important to see how plans at each metal level compare with each other. If silver plans end up being more expensive than gold plans in a given area, it will make sense to pick a gold plan instead of a silver plan (or a bronze plan, which will be less expensive but will also provide less robust benefits).

And people who have ACA-compliant individual market coverage outside the exchange (i.e. purchased directly from the insurance company, rather than through the exchange) also need to pay attention to this issue. Off-exchange silver plans may or may not have the cost of CSR added into their premiums—it varies by state and by insurer.

Enrollees in most states can switch from an off-exchange plan to an on-exchange plan if they experience a mid-year income change that makes them newly-eligible for subsidies in the exchange. This new rule was finalized in the federal guidelines for 2020 health coverage, although it’s optional for states that run their own exchange platforms (most states use HealthCare.gov, but there are 18 fully state-run exchanges for the 2022 plan year).

It’s important to keep in mind, however, that switching mid-year from one plan to another will mean that your deductible and out-of-pocket costs will reset at zero when the new plan takes effect (if you switch to the on-exchange version of your current plan, your insurer may allow you to tranfer your accumulated out-of-pocket expenses; make sure you ask about this).

So depending on your specific situation (ie, healthcare spending combined with the amount of the premium subsidy that becomes available to you) this may not end up being the best solution. As with most things related to health coverage, there’s no one-size-fits-all!

A Word From Get Meds Info

While CSR funding was cut off in late 2017 and that continues to be the case, the availability of CSR itself has not changed. Funding for premium subsidies has continued without interruption, and the premium subsidies themselves are considerably larger than they would have been if CSR funding hadn’t been eliminated.

This is beneficial to the millions of consumers who receive premium subsidies in the health insurance exchanges. But it is more important than ever for individual market consumers—both on and off-exchange—to carefully compare the available options during open enrollment.

If you need help figuring out what plan to pick, reach out to a navigator or broker in your community, or call the exchange in your state.

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