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Side Effects of Silver Loading

When the Trump administration decided in 2017 to stop reimbursing insurers for cost-sharing reductions on silver-level plans for those who qualify, carriers responded by raising the price of their silver-level plans across the board, a practice known as “silver loading.”

A recent Fierce Healthcare article reports on this practice, noting that the effect on consumers is vastly different depending on whether they are receiving a premium tax credit or not.

Initially, it might seem that a price increase is bad for consumers, but that really hasn’t been the case for people receiving a premium tax credit through Healthcare.gov. The reason is because the tax credits are calculated based on the cost of the second-lowest-priced silver-level plan sold through the marketplace, so when the price of silver-level coverage increases, so does the premium tax credit. The tax credit amount, though, can be applied toward any metallic tier, not just silver-level plans. So, as the article explains, “between 2017 and 2019, the average minimum net monthly premiums for subsidized enrollees in rural areas declined from $288 to $162. They decreased from $275 to $180 in urban areas.”

The reason for the discrepancy, according to the article, is that “Majority rural [areas] were much more likely than majority-urban ones to be served by monopolist insurers, which could fully leverage silver loading or switching to increase revenue from premium tax credits and reduce minimum net premiums.”

Unfortunately, we know from years of experience with the Affordable Care Act that when some people win, others lose, and that’s definitely the case with silver-loading: “people in rural areas who do not qualify for subsidies fared the worst on cost, according to the study, due to limited competition between insurers to manage costs.” In other words, the price increases on the silver-level plans impacted everyone, not just those receiving financial assistance. Those who do not qualify for a premium tax credit experienced the full rate increase, so they saw their monthly premium go up, not down.

Note: the information cited in the Fierce Healthcare article was based on a Health Affairs Blog study on the affordability of individual health plans. You can view that article here (a fee may apply).

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