Six Things Healthcare Executives Should Know About ‘Silver Loading’

When insurers stopped receiving cost-sharing reduction payments from the government last year, many significantly upped premiums for certain health plans. Here’s more on why they did it, what they did, and six more things healthcare executives should know.

Why they did it:

The federal government stopped making cost-sharing reduction (CSR) payments to health insurers last year, but insurers are still obligated to provide CSRs to eligible insureds. In order to cover the costs of CSR benefits, insurers had to raise additional premium revenue, says Morgan J. Tilleman, JD, senior counsel, Foley & Lardner LLP, a full-service law firm.

What they did:

Rather than simply raising the cost of all ACA health plans-which are tiered into bronze, silver, gold, and platinum plans that offer different levels of benefits-most insurers packed CSR-related premium rate increases only into silver-level plan premiums, says Christopher J. Metzler, PhD, JD, CEO, Gordium Healthcare, a multidisciplinary behavioral healthcare organization. That practice, known as "silver-loading," took advantage of a quirk in the ACA: The law uses the premiums for silver-level plans to determine the amount of federal subsidies available to individuals with annual incomes below 400% of the federal poverty level.

Six things health executives should know:

• More enrollees qualified for subsidies. When premiums for silver plans rose sharply, federal subsidies rose along with them, Metzler says. About 83% of individuals who signed up for the 2018 coverage year on the exchange qualified for federal subsidies and therefore were protected from premium rate hikes. Further, the higher subsidies made higher-value gold plans more affordable, and in some cases, made it possible for individuals to purchase lower-value bronze plans at no out-of-pocket premium costs.
• Silver loading will continue for 2019. HHS Secretary Alex Azar indicated in congressional testimony in June that there was not enough time to finalize a regulation prohibiting silver loading before rate filings were finalized for plan year 2019. “I think HHS looked at the disruption and challenges for insurers and state regulators that would arise from a rushed prohibition on silver loading, so they delayed it at least until 2020,” Tilleman says.
• States have the final say. State regulatory approval (or at least state acquiescence) is necessary for silver loading to succeed in a state. In some states, silver loading impacts both on-exchange and unsubsidized off-exchange silver plans, Tilleman says. In other states, all CSR costs were loaded onto silver plans that are sold only on the exchange. This second approach protected most unsubsidized silver plan purchasers (in the off-exchange market) from bearing disproportionate costs related to CSRs, because a super majority of on-exchange purchasers receive some type of premium subsidy.
• Silver loading will cause some premiums to rise. Premiums for 2019 plans will continue to rise, but health exchange consumers will be largely shielded from premium spikes next year because continued silver-loading will result in a corresponding increase in subsidies offered, and because rate increases will be concentrated within the silver-tier plans, says Anne Richter, chief strategy officer, Ameriflex, a health benefits administrator and payments technology company. Therefore, many exchange customers will likely gravitate toward gold and bronze-level plans, which will seem more attractive and significantly less expensive than silver-level plans. In particular, low-income consumers will likely default to bronze plan options, despite a concern that these plans may not offer the optimal coverage solution for everyone.
• Silver loading is just a temporary fix to rising healthcare costs. Although silver-loading has arguably been a net positive for consumers and insurers in terms of how it has allowed health plans to offset costs with a tactic that has also resulted in higher subsidies and lower-cost gold and bronze plan options for consumers, Richter says it is a temporary fix for the underlying problem of rising healthcare costs. “Any regulatory loophole or temporary measure will only postpone doing what needs to be done to tackle the issue head on,” she says.
• Effects on enrollment remain unclear. While silver loading will cause consumers to shift to bronze or gold plans, it isn’t clear whether the practice will have a net effect on enrollment on or off the exchange. “There have been so many moving pieces in the health insurance space over the last 18 to 24 months, that it’s difficult to isolate the impact of any one change, including silver loading,” Tilleman says.

Because silver loading can make the popular on-exchange silver plans a relatively worse deal than bronze or gold plans, Tilleman says state actions to promote active enrollment by current silver policyholders (into bronze or gold plans) can make a significant difference in whether silver loading is neutral (or perhaps beneficial) to individual insureds or whether it harms individual insureds overall (because they are auto-enrolled in expensive silver-loaded silver plans).

Karen Appold is a medical writer in Lehigh Valley, Pennsylvania.