When Joe Biden takes over as president, he will have the power to increase health care affordability with a single, small regulatory change. Specifically, he can pass a rule that increases the actuarial value of certain Obamacare plans, which would have the effect of increasing Obamacare subsidies by as much as 20 percent in some states. That same regulatory change would also make potential state-based health care reforms more financially viable. The net effect of all of this would be an increase in the number of people with health insurance and a decrease in health care premiums for people who have a subsidized Obamacare exchange plan.
Due to the complex interplay of the ACA rules governing subsidies — as well as bungled attempts by the Trump administration to sabotage the law — a minor regulatory change would have a major downstream effect. The regulations I am referring to are the de minimis rules for ACA plans. The ACA statute requires Obamacare silver plans to “provide benefits that are actuarially equivalent to 70 percent of the full actuarial value” (AV). Bronze plans must have an AV of 60%, gold 80%, and platinum 90%. What this means is that, a silver insurance provider must pay 70% of the cost of care for everyone covered while the other 30% is covered by patient copays and deductibles.
But a silver plan advertised as having an AV of 70% probably doesn’t come close to having an AV of 70%, thanks to the Trump administration. The ACA statute also says that “the Secretary shall develop guidelines to provide for a de minimis variation in the actuarial valuations.” De minimis regulation is how far off from the official AV a plan is allowed to deviate. The Obama administration originally adopted a rule allowing silver plans to have an AV between 68% and 72%. In 2017, the Trump administration changed the rule to an AV between 66% and 72%.
This small change was a big act of sabotage because the amount of subsidies a person qualifies for is pegged to the price of the second-cheapest silver plan in their service area. When the price is higher, the subsidies are higher. When the price is lower, the subsidies are lower.
The new de minimis rule established by the Trump administration allowed silver plans to lower their prices by shifting costs to consumers, which insurers took advantage of. With cheaper, stingier silver plans now on the market, millions of low-income people began receiving smaller subsidies.
Biden shouldn’t just reverse this Trump regulation but actually improve it. I would argue the best interpretation of the ACA is that the AV of metal tiers should serve as a floor. The government should assure silver plans cover at least 70% of AV. New York State has already taken this position and requires an AV of 70% to 72%.
The Biden administration should allow silver plans to be between 70% and 79% of AV. This should be legal as Trump already established a precedent for a de minimis range of 9 points when he created a range that large for bronze plans.
I would also recommend that the Biden administration make a similar change regarding the silver plans with cost-sharing reduction (CSR). Specifically, it should allow the “94% CSR silver plans” to have an AV between 94-100% instead of the current 93-95%, which would make care more affordable for everyone who get subsidies for these plans.
In many states, requiring silver plans to have AV of at least 70% instead of 66% would increase the price of silver plans. But, as noted already, this would noticeably increase subsidies for millions because those subsidies are pegged to silver plan prices. The amount of subsidy increase would vary dramatically for each person based on numerous factors, but could be several hundred dollars.
The great thing is that this move would have basically no downside, also because of Trump. When the Trump administration tried to sabotage the ACA by refusing to pay the cost sharing reduction payments insurers on the exchange were owed, states responded by “silver loading” that cost onto all silver plans. This artificially inflated the cost of silver plans relative to gold or bronze plans. This accidentally boosted subsidies, increased enrollment, and ensured no one without subsidies buys silver plans.
Helping states advance further reform
The big added benefit of this would come in states like California, which require insurers to design their standard silver plans to fall on the upper part of the allowed AV range. If California did that under these proposed rules, it would basically have the effect of implementing one of the major planks of the Biden health care plan: basing subsidies off of gold plans instead of silver plans. This could increase subsidies for a 40 year-old by $600 to $900 a year. It could also increase the number of people who qualify for subsidies and who qualify for free insurance. This would cause an increase in total enrollment and further increase the total amount of funds going to the state.
Because more federal health funds would flow to the state, big state health care reform would also become easier. States can apply for 1332 waivers under the ACA to adopt different systems, ranging from slightly modified versions of the ACA exchanges to even something approaching a state single payer program. But the amount of money a state qualifies for under a 1332 waiver is tied to how much money they received before the waiver, since such waivers legally can’t increase the deficit. Utilizing every regulatory option to maximize ACA subsidies and the number of people who get them would noticeably reduce how much a state would need to raise for any new system in the future under a 1332 waiver.
The final benefit of this plan is that it can be implemented unilaterally by the executive. If Congress is unwilling to pass anything, Biden can make good on part of his promise to improve affordability on his own.