HealthCheck, Winter 2023

Q&A—Cost-Sharing Reductions

Last September, the Health Practice Council’s Individual and Small Group Markets Committee and the Risk Sharing Subcommittee submitted a letter to the Centers for Medicare & Medicaid Services’ Center for Consumer Information and Insurance Oversight (CCIIO) regarding cost-sharing reductions (CSRs) relative to access to subsidized health insurance coverage for those who are eligible for the premium tax credit (PTC) established under the Affordable Care Act (ACA). Leaders of the committee and subcommittee also wrote a related article, “Paying For ACA Cost-Sharing Reductions: Are Premiums Too Low Or Too High?” that was published in Health Affairs in December. HealthCheck did a Q&A with several committee members, who offered insights on the issue and why the committee is weighing in.

What are CSRs, and how are they funded?

Most CSRs are provided through silver plan variants with reduced cost-sharing requirements relative to standard silver plans (one of the “metal tiers” established by the ACA for individual and small group plans). Silver plan CSRs are provided at three different levels based on household income, with cost sharing progressively reduced to achieve higher actuarial values (AVs). (American Indians and Alaska Natives are entitled to a separate range of CSRs that are accessible by enrolling in plans of any metal tier, not just silver.)

Initially, the federal government reimbursed health insurers for the difference between the cost sharing under the standard silver plan and reduced cost-sharing levels under the CSR plan variants. In October 2017, the federal government ceased those reimbursements. Despite the lack of federal funding, health insurers were—and still are—required by law to continue providing silver-plan variants with lower cost sharing for CSR-eligible enrollees. Beginning in 2018, insurers in nearly all states increased their premiums to cover the costs associated with providing CSRs to eligible enrollees. Also in 2018, CMS encouraged states to apply the load to on-exchange silver plans only; currently, most states allow or require insurers to increase the premiums for silver plans only and often specify on-exchange silver plans only. In addition, some states prescribe the CSR load factor, and others are considering doing so.

Is there a required method for calculating CSR costs or CSR loads?

There is no formal regulatory direction regarding the calculation of expected CSR costs. Actuaries may follow any number of methods to estimate them. In addition, CCIIO does not require any particular method of calculating the CSR load. Instead, the choice of method has been left to state regulators in states with effective rate review programs (every state but Wyoming and Mississippi) and, where state regulators have declined to specify a method, to insurers. As a result, the approach used can (and typically does) differ among insurers and among states. Absent other requirements, actuaries would typically calculate a CSR load so that it would recoup expected CSR costs under the actuary’s best estimate of the enrollment distribution during the pricing period.

Why did the committee/subcommittee submit a letter to CCIIO?

The intent was to highlight to federal and state regulators (HPC representatives also separately briefed state regulators through National Association of Insurance Commissioners) how different approaches to calculating the CSR load can affect actuarial soundness. The letter notes that in order for a CSR load to be actuarially sound, the total revenue from premiums needs to offset the expected value of all future costs associated with these plans. The letter further opines that “[a]ctuarially unsound CSR loads produce cross-subsidies from enrollees in one group of plans to those in another group of plans beyond that intended by the ACA and its related regulations” and/or produce rates that are not aligned with costs in total.

In particular, the committee raised concerns that approaches that don’t take into account various factors that can affect CSR costs—such as the distribution of enrollees across silver plan variants, provider reimbursement levels, and utilization of enrollees in the single risk pool—can result in CSR loads that are not actuarially sound.

Does the committee recommend any particular approaches to calculating the CSR load?

Although the committee recommends that any method used be actuarially sound, it does not prescribe any specific methodology for the development of CSR loads. It does note, however, that approaches that are calibrated with actual experience data are more likely to produce results that are consistent with issuer experience, increasing the likelihood that the CSR load and filed premiums are actuarially sound. Importantly, the committee emphasizes that using specific experience to calculate the amount of unfunded CSRs and establish the aggregate value of the CSR load can be viewed as in compliance with the single risk pool requirement, and an actuarially sound CSR load remains compliant as long as the methodology used to spread that amount across all plans is deemed appropriate by federal and state regulators.

Are actuaries developing CSR loads required to follow state and federal laws and regulations?

Yes, actuarial standards and the Code of Professional Conduct require actuaries to follow the law.

What gets complicated is that the federal unified rate review instructions require actuaries to certify that rates are developed in compliance with applicable law and that the index rate is neither excessive nor deficient. In certain situations, state-mandated CSR loads may produce premiums that are excessive or deficient. For example, a state could require the development of actuarially sound premium rates assuming CSRs are funded and then mandate a specific CSR load. If this mandated CSR load is materially higher or lower than can be reasonably supported by an issuer, then the issuer would have to make a choice between the competing pair of legal requirements. In such a situation, actuaries should follow applicable actuarial standards of practice and may wish to seek additional guidance from applicable authorities.

Learn More About CSRs: Health Webinar Examines Cost-Sharing

The Health Practice Council (HPC) webinar, “Considerations for Calculating Cost-Sharing Reduction Load Factors,” featured discussion of and Q&A about cost-sharing reductions provided for under the Affordable Care Act. Joyce Bohl, Academy Board member and chairperson of the HPC’s Individual and Small Group Markets Committee, moderated, and Vice Chairperson Donna Novak and Jason Karcher, chairperson of the committee’s Risk Sharing Subcommittee, presented. Slides and audio are available free as a member benefit.

Volunteers Present on Health Issues at NAIC National Meeting

Academy Health Practice Council volunteers presented to the National Association of Insurance Commissioners’ (NAIC) in late 2022, both virtually and at Fall National Meeting in Tampa, Fla.:

• Health Vice President Barb Klever gave an update on Health Practice Council activities to the Health Actuarial (B) Task Force (HATF) during HATF’s virtual meeting, held before the national meeting.
• Health Solvency Subcommittee Chairperson Derek Skoog provided an update to NAIC’s Health Risk-Based Capital (E) Working Group on the subcommittee’s ongoing work on the H2 underwriting risk component and the managed care credit calculation in the health risk-based capital formula.

Health Highlights From ‘Envision Tomorrow’ Annual Meeting

New Academy Officers Include Health VP Barb Klever

The Academy’s “Envision Tomorrow: 2022 Annual Meeting,” held Nov. 2–3 in Washington, D.C., explored key health issues in both general and practice-area breakout sessions.

Barb Klever became Health Vice President, as part of the leadership transition. Klever, previously a member-selected director of the Board, has been an active health volunteer, including as vice chairperson of the HPC and past chairperson of the Individual and Small Group Markets Committee. She also took part in the “Inflation Nation” general session, presenting the health perspective in that session that examined inflation-related issues across all practice areas.

Also joining the Board as new member-selected directors were Julia Lerche, a member of the Health Practice Council and chairperson of the HPC’s Medicaid Committee; and Joyce Bohl, also a member of the Health Practice Council and chairperson of the Individual and Small Group Markets Committee.

Annette James (left) leads a DEI general sessionMember-selected director and Health Equity Committee Chairperson Annette James moderated a general-session luncheon panel that covered the Academy’s public policy work across practice areas on diversity, equity & inclusion (DEI) issues. Additionally, Rising Actuary Award recipient Yixuan Song was a participant in a general session on data analytics.

Breakout Sessions

The event included three health breakout sessions, which featured high-profile and expert presenters. Bohl chaired a session that featured officials from the Center for Consumer Information and Insurance Oversight (CCIIO), “Regulating the Affordable Care Act: What’s New for 2023?” Climate Change Joint Task Force member Ron Ogborne chaired a “Climate Change and Health” session, and Health Care Delivery Committee Chairperson Rebecca Owen chaired a session on “Health Care Workforce Shortages.”

For full coverage, including a look at what was discussed during the breakout sessions, see the November Actuarial Update supplement, Envision Tomorrow: A Closer Look.

Academy Sponsoring Drake Symposium Diversity Scholarships

Members are encouraged to share with actuarial students that the Academy is sponsoring six diversity scholarships to the 2023 Drake Symposium on Insurance, which focuses on insurance and actuarial science. Recipients must be available to travel to Des Moines, Iowa, on April 14–15, 2023. The application deadline is Feb. 17. For more information and to apply, click here.

Sold-Out LHQ Seminar Delivers Valuable CE

Past President D. Joeff Williams moderates a sessionThe Academy hosted a successful Life and Health Qualifications Seminar in November in Arlington, Va. The sold-out event included sessions on professionalism, actuarial opinions, and interactive case-study breakout sessions that have long been highly valued by attendees.

Attendees received required basic education and continuing education (CE) to be qualified to sign statements of actuarial opinion for NAIC Life and Health Annual Statements, and a range of topics were discussed including principle-based reserving, risk adjustment data validation, and risk-based capital.

Presenters included Past President D. Joeff Williams—Actuarial Standards Board Chairperson and new Academy Secretary-Treasurer Darrell Knapp chaired the subcommittee that organized this year’s seminar.