Impacts of Premium Alignment in the Texas ACA Marketplace

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Introduction

This summary outlines key insights from Dr. Dave Anderson's research on the Affordable Care Act (ACA) in Texas, focusing on the implementation and effects of "premium alignment."

Dr. Anderson, an extraordinary scholar with a unique background spanning public policy, insurance analysis, and a knack for translating complex concepts, brings a perceptive understanding to how formal rules are applied with flexibility to achieve their intended effects.

His findings emphasize how premium alignment can reduce barriers to coverage by simplifying payment structures and improving affordability for enrollees. In Texas, where ACA adoption has faced political and logistical challenges, this approach demonstrates that targeted administrative adjustments can have significant real-world impact.

Dr. Anderson’s work highlights the interplay between policy design and practical execution, showing that small operational changes can yield measurable improvements in access and equity.

Understanding the ACA and "Metal Bands"

The ACA embodies an "extreme example of cooperative federalism," granting states significant flexibility within a broad federal framework. A core component of the ACA is the categorization of health plans into "metal bands": Bronze, Silver, Gold, and Platinum. Each band signifies an "Actual Value" (AV), representing the percentage of allowed claims an insurer will pay for a hypothetical population. For instance, a Bronze plan has a 60% AV, meaning the insurer pays 60% of allowed claims, while individuals cover the remaining 40% through deductibles, co-pays, and co-insurance. Platinum plans, at 90% AV, entail significantly lower out-of-pocket costs for individuals.

Cost-Sharing Reduction (CSR) Benefits and the Rise of "Silver Loading"

Congress mandated Cost-Sharing Reduction (CSR) benefits for low-income individuals (100-250% of the federal poverty level) who purchase Silver plans, recognizing their sensitivity to cost-sharing. These benefits significantly increase the actual value of Silver plans for eligible individuals; for example, a high-value CSR plan for those under 150% FPL can achieve a 94% AV, offering very low deductibles and out-of-pocket maximums.

However, from 2014 to 2017, CSR benefits, despite being mandatory, lacked a direct federal appropriation. In October 2017, the Trump administration ceased direct payments to insurers for CSR benefits. Contrary to predictions that this would destabilize the ACA market, insurers instead shifted the cost of these benefits onto only Silver plan premiums. This phenomenon, known as "Silver Loading," meant that while Silver plans became more expensive for unsubsidized individuals, the subsidies for low-income individuals, which are tied to the second lowest-cost Silver plan, also increased. Critically, this made non-Silver plans (Bronze and Gold) significantly cheaper for many, especially those above 200% of the federal poverty level. This led to substantial enrollment gains and a notable shift in enrollment out of Silver plans and predominantly into Bronze plans. This resulted in an "unusual" pricing dynamic where higher AV Silver plans were sometimes priced similarly to or even cheaper than lower AV Gold plans.

Texas Senate Bill 1296: "Silver Loading on Steroids" In 2021, Texas enacted Senate Bill 1296 (SB 1296), a unique bipartisan bill that passed unanimously. This legislation empowered Texas to assume responsibility for reviewing insurance rates (a role previously held by CMS for Medicare Medicaid Services) and, crucially, mandated "induced demand factors" in pricing. This policy, effective in 2023, effectively intensified Silver Loading, making Silver plans substantially more expensive than market rates would otherwise suggest. The primary goal was to make Gold and Bronze plans much cheaper for subsidized buyers, hence being termed "silver loading on steroids".

Research Findings: Enrollment Effects and Insurer Response

1. Enrollment Effects in the Texas ACA Market (2023): This study investigated how enrollment changed by income level and CSR choice after Texas implemented premium alignment in 2023.

• Methodology: Researchers used a synthetic differences-in-differences approach, comparing Texas counties to a weighted pool of healthcare.gov states not implementing similar premium alignment policies. Robustness checks confirmed the validity of the findings.
• Key Findings:
  • Increased Affordability: The price of the cheapest plans for both subsidised and unsubsidised enrollees dropped by $10 to $20 per month. This significantly expanded the availability of zero-premium plans for many.
  • Enrollment Growth: Overall enrollment in Texas increased by approximately 10%. The most robust increases were seen among those between 200% and 400% of the federal poverty level, with enrollment growing by 14% to 18% in these income groups. This growth was attributed to the newly exposed availability of cheaper plans.
  • Shifts in Plan Choice: There were substantial shifts, particularly among low-income individuals, from plans with richer, lower-deductible benefits (e.g., high and medium CSR Silver plans) to lower-premium, less protective plans (e.g., high-deductible Bronze plans). For instance, individuals with the richest CSR benefits (under 150% FPL) were 9 percentage points less likely to select them, and those with medium benefits (150-200% FPL) were 18% less likely. The study notes that whether this shift represents a rational choice for low-risk individuals or a problematic outcome for sicker individuals requires further investigation.

1. Insurer Response to Premium Alignment: This second study examined how insurers adjusted their plan offerings and actual values in response to Texas's premium alignment.

• Methodology: A border county design was employed, matching Texas border counties with adjacent counties in Oklahoma, Arkansas, and Louisiana. This approach aimed to control for various confounding factors and isolate the effects of the policy.
• Key Findings:
  • Bronze Plan Offerings Declined: A dramatic decrease in insurers offering Bronze plans was observed. In at least 35% of counties, at least one insurer ceased offering a Bronze plan, leading to an overall 15% decline in insurers offering such plans. This is significant because Bronze plans are typically the cheapest available option for many consumers.
  • Gold Plan Adjustments: While the least expensive Gold plans saw minimal changes in premium, their benefit structures were subtly adjusted (e.g., slightly higher deductibles without changes to maximum out-of-pocket). These changes made Gold plans potentially more attractive to "very costly enrollees" who anticipate high medical utilization, as they prefer plans where a higher portion of their cost-sharing is absorbed by a deductible that equals their out-of-pocket maximum.

Policy Implications

Premium alignment in Texas demonstrates several important policy implications:

• Enhanced Affordability: The policy has largely succeeded in making health insurance more affordable for both subsidized and unsubsidized buyers, particularly in areas where cheaper Bronze plans remain available.
• Significant Federal Transfer: The policy facilitates a substantial "informal transfer" of federal funds, leading to an estimated 100,000 new enrollees in the Texas market, which currently serves 2.5-3 million people.
• "Mirror Universe" of Policy: Dr. Anderson characterizes this policy as a "mirror universe" version of Section 1332 reinsurance waivers. While waivers typically shift money away from subsidized enrollees to make plans more affordable for the unsubsidized, premium alignment does the opposite: it injects more money into subsidized enrollees, thereby also making plans more affordable for the unsubsidized population.
• Future Considerations for States: States like Illinois and Michigan are already contemplating similar premium alignment policies, particularly as a "policy cushion" in anticipation of the potential non-renewal of enhanced premium subsidies in the future.

Regarding the unsubsidized population in Texas, it's estimated that approximately half a million Texans out of a total market of over three million do not receive a subsidy. For a 40-year-old single individual, premium alignment made the cheapest plan approximately $20 per month cheaper, representing a 4-5% decrease relative to a scenario without the policy. While beneficial, other interventions like reinsurance waivers might be more effective if the sole concern is to reduce gross premiums for unsubsidized individuals.

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