Covered California s Review of CMS s Analysis of the 2018 Open-Enrollment Period

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1 Covered California s Review of CMS s Analysis of the 2018 Open-Enrollment Period April 25, 2018 One of the key roles of federal and state entities, whether they be the Centers for Medicare and Medicaid Services (CMS) or Covered California, is to analyze and communicate complex data in ways that can inform policy making. Given that there may be different conclusions reached on policy choices and even different ways to present the same data, we all benefit from having a clear and accurate starting point from which we can understand the current health care landscape to help frame policy approaches. To that end, Covered California has prepared a report, Individual Insurance Markets: Enrollment Changes in 2018 and Potential Policies that Could Lower Premiums and Stabilize the Markets in What follow are some observations that seek to provide context or clarify elements of the April 3, 2018, CMS press release, CMS final report shows 11.8 million consumers enroll in 2018 Exchange coverage nationwide. We hope our report and these observations help policy makers have a more complete understanding of the 2018 enrollment and policy alternatives to address potentially rising premiums. Changes to Premiums From 2017 to 2018 for Americans: Dramatic Reductions for Those Receiving Subsidies One of critical changes in the enrollment environment for 2018 was the response to the administration s decision to stop direct funding of cost-sharing reduction (CSR) reimbursements in Most states responded by allowing carriers to fund the required program for lowerincome enrollees by loading a CSR surcharge onto their Silver plans for subsidized consumers to make up for the loss of those payments. This decision resulted in the following: While premiums increased by 31 percent, the price a subsidized consumer paid dropped an average of 16 percent due to an average 44 percent increase in the amount of the Advanced Premium Tax Credit (APTC) they received. The increased value of the APTC due to the CSR workaround allowed most subsidized consumers to lower their premiums and for some consumers, to use their increased purchasing power to get more-comprehensive coverage. The CMS final enrollment report shows that in 2018 there was a shift away from Silver in the higher federal poverty level categories (see Table 1: Federally Facilitated Marketplace Metal Tier Selections by CSR-Eligible Consumers). For some CSR-eligible consumers between 200 and 250 percent of the federal poverty level, this meant selecting lower-cost Bronze plans or a COVERED CALIFORNIA TM 1601 EXPOSITION BOULEVARD, SACRAMENTO, CA

2 higher-coverage Gold plan instead of the Silver 73 plan for which they were eligible. 1 Among the lowest-income consumers, despite the availability of much cheaper net premiums in Bronze coverage, slightly more consumers opted for the Silver plans with the highest CSR subsidies (94 percent actuarial value) than in Overall, CSR enrollment in the FFM declined by 7 percentage points (see Table 2, Consumers With Financial Assistance in the Federally Facilitated Marketplace). The impact of metal tier choices is important because CSR-eligible consumers can only receive the benefit of lower outof-pocket costs if they select the Silver metal tier. Further analysis is needed to understand if consumers are foregoing needed subsidies that reduce their out-of-pocket costs and the total cost of health care. In addition, as shown in Table 3, the changes in metal-tier selection is most stark for consumers in the 200 to 250 percent of federal poverty level category. Further study is needed to better understand these consumer shopping trends, including the extent of forgone subsidies as well as potential impacts to affected consumers if direct federal CSR funding is restored. 1 Additionally, in many states, at least some consumers could find an issuer s Gold plan that was cheaper than the same issuer s Silver plan due to the CSR Silver loading. This phenomenon likely also pushed some enrollees toward Gold, and more analysis is needed to ensure lower-income consumers did not leave needed cost-sharing reduction subsidies on the table. COVERED CALIFORNIA TM 2

3 Changes to Premiums for Americans: Most Were Shielded From Bearing the Costs of the Required Cost-Sharing Reduction Program The CSR-surcharge strategy adopted by most states was the best option available to protect both unsubsidized consumers and those who get subsidies. The vast majority of unsubsidized consumers were able to avoid paying the CSR surcharge because they were already purchasing off exchange (and in most states off-exchange products were available without the CSR surcharge) or by moving into nearly identical Silver-tier plans that were offered offexchange and not subject to the increase. The fact that unsubsidized Americans did not face premium changes due to the CSR workaround, was confused by the CMS release that stated unsubsidized monthly premiums continue to rise for HealthCare.gov consumers, jumping from $476 last year to $621 this year, an increase of 30 percent. This statement misleads policy makers, since the increase includes the CSR surcharge that unsubsidized consumers did not need to pay. As noted earlier, most unsubsidized consumers are those who purchase off-exchange and were never charged the CSR surcharge. Even on exchange, unsubsidized consumers could avoid the extra costs that carriers needed to incur. For better perspective on premium growth without the CSR workaround, the CMS public-use file data shows the average Bronze premium before subsidies increased by 18 percent. While this is indeed a big increase, almost three times the 7 percent average annual increase unsubsidized consumers have faced in California over the past four years, it is a more representative statistic of individual market premium changes than the focus on the Silver premium in the press release. Alternatively, CMS could have presented rate changes for the Gold premium since some unsubsidized consumers could have changed metal tiers to avoid the CSR surcharge. CMS Release Reflects Lack of Familiarity With Individual Market Dynamics and the Role of Marketing Misleading information in media reports about premium increases being far higher than they were which could have discouraged enrollment and the lack of marketing and outreach at the federal level likely led to a significant drop in off-exchange enrollment as well. Early data indicates that from 2016 to 2018, 1.5 million unsubsidized middle-class Americans left the individual market, reflecting a drop of as much as 30 percent. These consumers, likely healthier than those who remained may have been discouraged from maintaining their insurance by inaccurate national media coverage of 36 percent premium increases. These are individuals for whom marketing is most vital. Without marketing and outreach, these consumers may not have known that the CSR workarounds provided them with options, and they could have maintained coverage for nearly 20 percent less than they believed. More importantly, they may not have been urged to shop and compare their options. The press release also states that CMS spent less on outreach and advertising while enrollment stayed essentially the same, and that the agency spent just over $1 per COVERED CALIFORNIA TM 3

4 HealthCare.gov enrollee by funding only the most efficient tactics and increasing direct response outreach. The administration adopted a 71 percent reduction in marketing and outreach for the 2018 coverage year, including a 90 percent cut in spending for advertising. This policy decision may have contributed to the nearly 40 percent drop in new consumers signing up for coverage since 2016, and could increase premiums dramatically for millions of unsubsidized Americans. Any well-known company could save money in the short term by dramatically cutting back on marketing and outreach and see relatively little impact on sales during the first year. However, when it comes to health insurance, we have already begun to see the significant losses in the FFM and dramatic drop in enrollment of new consumers will likely result in a less-healthy consumer pool. The subsequent higher premiums for everyone increases the likelihood that more consumers particularly the unsubsidized will be priced out of the individual market. Covered California estimates that 1.4 million Americans would be insured, including 910,000 subsidy-eligible consumers if the FFM invested in marketing and outreach at the level of Covered California. In addition, premiums would be reduced by an average of more than 2 percent in 2019 alone, which would save $1.6 billion worth of savings for consumers and taxpayers. The three year savings for would be more than $6.6 billion and an average premium decrease of 3.2 percent. (See Table 4: Potential Impacts of Enhanced Marketing and Outreach for FFM States ). The CMS press release also notes that the decision to adjust the open enrollment marketing budget to a level that is consistent with advertising spending for Medicare has proven to be effective. There are key differences between the circumstances, health and finances of Medicare enrollees and those currently enrolled in the individual market that make these comparisons unsound. The vast majority of consumers enrolled in Medicare are the elderly, who often have chronic health conditions that require regular care, and thus sign up because they know they need health insurance. Our experience shows that this is not the case in the individual market, where younger and healthier consumers do not have the same understanding because innate biases lead them to perceive health insurance as something they do not need. For example, the optimism bias leads people to routinely underestimate getting seriously ill or falling victim to a catastrophic health event. In addition, the cost to consumers enrolling in Medicare is much lower than what consumers can find on the individual market, and therefore it is more important to perform marketing and outreach in the individual market at a level that surpasses what is being done for Medicare. Once again, as Covered California detailed in its Marketing Matters report, health insurance is a product that needs to be actively sold. COVERED CALIFORNIA TM 4

5 Understanding Premium Changes Over the Past Five Years The CMS press release goes beyond seeking to frame the enrollment and premium changes from 2017 to 2018, to look at changes over multiple years. In doing so, the release risks confusing policy-makers. Premium changes comparing pre-affordable Care Act to today: The CMS press release states that average individual market premiums have more than doubled since 2013, which may be technically accurate, but is very misleading because the products compared are not an apples to apples comparison. Consumers premiums in 2013 were based on a pool of consumers that excluded millions of people who could not get coverage because they were previously discriminated against for having a pre-existing condition. For those who had coverage, their plans would frequently have benefit gaps or limits on financial coverage. Today, there is guaranteed issue and coverage standards for essential health benefits and the overwhelming majority of those who enroll in an exchange receive financial assistance to help bring health care within reach. In some cases, the addition of these benefits certainly increased premiums, but these reforms have also lowered costs to consumers for the care they receive. In addition, the total premium does not reflect the value of the subsidies that have lowered the cost of coverage for millions of Americans. Premium changes 2014 to today: In California s individual market, subsidized enrollees have seen a four-year average increase of 3.3 percent in their premiums since 2014, while unsubsidized enrollees have seen an average annual premium increase of 7.2 percent during that time. Providing clear information on increases over the past four years would be helpful to inform policy. COVERED CALIFORNIA TM 5

6 TABLE 4: Potential Impacts of Enhanced Marketing and Outreach for FFM States Year Total ( ) Baseline (Projected 2018 level) Enhanced (Hypothetical) Difference (Impact) Marketing Spend Potential 3 Year Impact Due to Enhanced Marketing Baseline $47 million $47 million $141 million Enhanced $353 million $1.1 billion On- and Off- Exchange Per Member Per Year Total $47 million $400 million $353 million $1.2 billion Enrollment 2021 Baseline End of Period Enrollment Difference from 2021 Baseline 5,189,362 5,708, ,936 4,550,988 5,461, ,198 2,956,729 3,252, ,673 2,593,005 3,111, ,601 Total 8,146,091 8,960, ,609 7,143,993 8,572,791 1,428,799 Premiums (Individual) $8,379 $8,189 $190 Percent Change 2.3% 3.2% Core Group On- and Off- Exchange Total Premiums (Aggregate) Average Premium Decrease ( ) Total Cumulative Premiums (3 Years) Difference from Baseline $43.5 billion $42.5 billion -$1 billion $126.8 billion $4.2 billion $24.8 billion $24.2 billion $563 million $72.3 billion $2.4 billion Subtotal $68.3 billion $66.7 billion $1.6 billion $199.1 billion $6.6 billion Marketing-Induced Group On- and Off-Exchange TOTAL On- and Off- Exchange $4.3 billion $4.3 billion $19 billion $19 billion $2.4 billion $2.4 billion $10.8 billion $10.8 billion Subtotal $6.7 billion $6.7 billion $29.8 billion $29.8 billion $43.5 billion $46.7 billion $3.3 billion $145.8 billion $14.8 billion $24.8 billion $26.6 billion $1.9 billion $83.1 billion $8.4 billion Subtotal $68.3 billion $73.4 billion $5.1 billion $228.9 billion $23.2 billion Potential Return on Investment of Enhanced Marketing (return is lowered premiums for original group) Potential ROI 339% 501% COVERED CALIFORNIA TM 6