Relaxing the Affordable Care Act’s Metal Level Definitions: Issues for Consumers and State Options

The Trump Administration’s Market Stabilization rule makes several changes to marketplace coverage options and enrollment rules, beginning with new requirements for consumers enrolling in coverage through a special enrollment period beginning June 23rd. Another one of those changes gives insurers greater flexibility to meet the actuarial targets that determine the Affordable Care Act’s (ACA) so-called metal levels (bronze, silver, gold, and platinum) beginning with plans that will be available during open enrollment for 2018 coverage.

The ACA requires insurers to offer plans in standard levels of coverage based on actuarial value, so that consumers can more easily compare plans on an apples-to-apples basis. However, insurers can meet the actuarial value standards for each metal level with de minimis variation, which was defined by the Obama Administration to mean plus or minus 2 points. Under the old rules, for example, an insurer that proposed a silver level plan, which has an actuarial value of 70 percent, could qualify as a silver plan with an AV between 68 percent and 72 percent. Bronze-level plans were allowed to vary by plus 5 or minus 2 points. The Trump Administration rule redefines de minimis to allow for greater variation, with an AV that is plus 2 points or minus 4 points. Certain bronze plans, previously limited to plus 5 or minus 2 points can now vary by plus 5 or minus 4 points.

Policy Goals and Potential Impact of New Actuarial Value Standard

In proposing the change in definition, the Trump Administration said greater flexibility is needed to “help insurers design new plans,” including lower premium plans, and to “allow more plans to keep their cost sharing the same from year to year.” (On a separate track, the House-passed American Health Care Act eliminates the ACA standard coverage levels entirely). Although the greater flexibility may spur innovative plan designs, it’s likely to raise a number of issues for consumers.

First, allowing for plans with lower AV should put downward pressure on premiums, but it will also mean consumers will have higher deductibles and other out-of-pocket costs. The average deductible for a bronze-level plan has climbed each year and tops out this year at more than $6,000 for an individual plan. Increasing the deductible just makes the idea of “coverage” even more illusory.

Second, the greater variation means that consumers will have more difficulty making apples-to-apples comparisons of plans. Even with the narrower definition of AV variation, cost-sharing could vary significantly between plans in the same metal level. Since the AV is based on how much cost-sharing a plan imposes on enrollees, allowing insurers greater flexibility in meeting the AV targets means consumers will have greater difficulty comparing plans within each metal level and between the bronze and silver plans, in particular. Under the new definition, certain bronze plans can have an AV of as much as 65 percent and a silver plan may have an AV of as little as 66 percent – making plans across those metal levels virtually indistinguishable to consumers.

Finally, a lower AV is likely to lower the premium tax credits available to low- and moderate-income consumers. A plan with a lower AV – and higher cost-sharing – will have a lower premium than a plan with a higher AV. It’s likely the second lowest cost silver plan, which determines the value of premium tax credits, will get that designation with a lower AV than in past years. That means consumers will have less buying power with premium tax credits and will likely be limited to buying plans with greater cost-sharing or paying more out-of-pocket to buy coverage with lower out-of-pocket costs.

State Options to Protect Consumers

The AV requirements under the ACA apply to all non-grandfathered plans sold to individuals and small employers, both inside and outside the marketplaces and SHOPs. States have flexibility to define de minimis differently from the new federal definition, regardless of whether they use healthcare.gov or operate their own marketplace. The final rule calls out that authority, noting, “States are the enforcers of AV policy and nothing under this policy precludes States from applying stricter standards.” Thus, a state could continue to require plans meet the Obama-era definition of de minimis variation. States could apply the tighter variation to all metal levels, but have a particularly strong incentive to at least do so for silver level plans to protect against shrinking premium tax credits.

In some cases, state departments of insurance could require insurers to continue to meet the narrower definition of de minimis without state legislative action, but other states may need statutory authority. In at least one state, California, the de minimis requirement of plus or minus 2 points is already codified in their state law. Changing the rule to align with the new federal standards would require action by the legislature.

If states follow the federal rule and allow for greater variation, consumers may have a choice of plans with slightly lower premiums than they otherwise would have, but will face higher deductibles and other cost-sharing and may find it far more challenging to compare plans. As a result, many could end up enrolled in a plan that doesn’t meet their needs.

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