Understanding Marketplace “Silver Loading”

Congress is expected to consider a reconciliation bill that would include major cuts to health programs. In recent weeks, policymakers have begun discussing a new proposal related to a component of the Affordable Care Act (ACA) called cost-sharing reductions (CSRs). The change could cause large price increases for people with ACA health insurance, especially those with incomes between 250% and 400% of the federal poverty level (currently $39,125 to $62,600 for a single person). This piece explains the proposal and considers how it could impact families who get coverage through the ACA.

What are cost-sharing reductions under the ACA?

The Affordable Care Act created Health Insurance Marketplaces, where consumers can shop for a health insurance plan and, in many cases, get financial help to pay for it. Marketplace plans are classified into “metal levels”—bronze, silver, gold, or platinum—based on how generous the coverage is on average. Bronze plans have to cover about 60% of total health care costs, silver plans 70%, gold plans 80%, and platinum plans 90%.

The ACA also created two systems for providing financial assistance to people who buy ACA health plans in the Marketplace—premium tax credits (PTCs) and cost-sharing reductions (CSRs). PTCs lower the premium that enrollees have to pay for their plan, and 90% of enrollees receive PTCs. Because health insurance premiums can vary based on factors like geography and age, the value of PTC for a given person is based on the premiums of the plans available to that person—specifically, the premium of the second-lowest cost silver plan. PTCs also vary based on income, with lower-income people receiving larger PTCs. And even though PTC is calculated based on silver plan premiums, enrollees can use the PTC amount to purchase any metal level of coverage that they want.

A smaller share of Marketplace enrollees also receive CSRs. CSRs lower cost-sharing for lower-income enrollees: for example, rather than having a $40 co-pay for a brand-name prescription drug, a CSR enrollee might have a $15 co-pay, and similar adjustments are made for cost-sharing on all types of health care services. CSRs are available to people between 100% and 250% of the federal poverty level (currently $15,650 to $39,125 for a single person). Critically, CSRs are only available if an enrollee chooses a silver plan. 

When enrollees receive CSRs, they are getting a version of the silver plan that covers a larger share of medical expenses. Enrollees in the “base” silver plan, with the $40 co-pay for brand-name drugs, have a plan that covers 70% of costs. But a CSR enrollee who gets a $15 co-pay for brand-name drugs and similarly lower cost-sharing for other services has a plan that covers much more of their costs. CSR plans raise the share of costs covered by a silver plan from 70% to 94% for the lowest-income enrollees and to a lower level (either 87% or 73%) for higher-income CSR-eligible enrollees. 

How have cost-sharing reductions changed over time?

From 2014 until the fall of 2017, insurance companies were reimbursed by the federal government for the value of the CSRs they provided. However, in the fall of 2017, the Trump administration abruptly reversed course and stopped making those payments, asserting that Congress had not appropriated the requisite funds. Insurance companies were still required to provide the CSRs, and so they chose to recoup those costs elsewhere. Over time, pricing has adjusted in a way that has, counterintuitively, ultimately left ACA consumers much better off than before. 

Specifically, health plans in partnership with state regulators have settled into a system called “silver loading,” under which plans have incorporated the cost of providing CSRs into the premiums they charge for silver plans. CSR enrollees continue to receive the lower cost-sharing for which they qualify in silver plans. And because the PTCs they receive are based on silver plan premiums, enrollees have not had to pay higher premiums.  In addition, middle-income consumers between 250% and 400% of the federal poverty level have benefited from lower net premiums. These consumers can choose bronze or gold coverage without having to pay a premium that includes the cost of CSRs. Silver loading does increase the premiums of Marketplace silver plans for people not eligible for subsidies, but these enrollees can generally avoid any premium increase by purchasing an essentially identical plan outside the Marketplace. Today, the market is stable, and this system for reimbursing CSRs is integrated into pricing for ACA plans.

However, Congress is now considering upsetting pricing once again and returning to a system where plans would be reimbursed directly for the cost of CSRs. This would end “silver loading” and its benefits for consumers. Plans would lower premiums for silver plans while leaving premiums for bronze, gold, and platinum plans largely unchanged. Enrollees receiving CSRs would experience no major change (and federal spending for those enrollees would similarly stay roughly the same). But enrollees with incomes between 250% and 400% of the federal poverty level would see reduced financial assistance, reducing federal costs, but greatly increasing enrollees’ premiums. 

A full modeling exercise is beyond the scope of this paper, but it is useful to consider a stylized example of how this could play out for a particular family with simplified assumptions. Consider a married couple, each 60 years old, earning $62,000 per year. Today, they might pay $355 for a gold plan after PTC. Because of other changes in the law unrelated to silver loading (namely, that Congress may allow enhancements to the overall generosity of PTC to expire), their premium for a gold plan is expected to increase to around $548 in 2026. But if the market is forced to reprice without silver loading, their premiums for gold coverage would rise further to something on the order of $900, depending on assumptions.¹ This family could also elect to purchase a benchmark silver plan for $505, reducing their premium but exposing them to higher deductibles and other cost-sharing. The magnitude of these changes will vary by state and actual issuer behavior, but in most cases, this will be a major premium increase for middle-class families. 

The premium increases spurred by ending silver loading would have a range of consequences. As premiums increase, some people, mostly healthier enrollees, will drop their health insurance coverage. According to estimates, several hundred thousand people or more could lose coverage as a result of the end of silver loading, reducing their financial security and access to care and likely also increasing uncompensated care burdens for providers. Enrollees who are sicker are more likely to accept the higher premiums and stay enrolled, raising costs for insurers. These impacts would be on top of other major changes that Congress is pursuing that would reduce coverage, increase families’ costs, and increase uncompensated care burdens for providers.

Moreover, these premium impacts are in certain ways a best-case scenario. They assume that insurance companies will respond swiftly and relatively accurately to eliminating silver loading. And there is reason to be hopeful that the market could execute a rapid change; indeed, the experience in 2018 when silver loading began was an imperfect but surprisingly smooth transition to the new system. At the same time, a change for 2026 may not be as seamless as policymakers hope. The market is already facing very large premium increases and enrollment reductions, due to the expiration of enhanced PTCs and other policy changes, among other reasons. This creates uncertainty for health insurance companies; while it is clear these policies will lead to a smaller and less healthy pool of enrollees, the size of that shift is hard to predict with precision. This type of uncertainty may make insurers more reluctant to serve this market, leading them to exit, at least until the dust settles. One major insurer recently announced it is cancelling health plans in 17 states, although it is not clear what role policy uncertainty played in the choice. Expecting insurers to implement a pricing overhaul by ending silver loading would layer on more policy uncertainty and could lead to additional insurer exits.

As a final note, if Congress was committed to the idea of ending silver loading, they would have options to do so in ways that, at least on average, made consumers better off by reinvesting the federal savings in making the PTC more generous. But resuming CSR payment without reinvesting the savings, as House lawmakers appear to be considering, would sharply increase what many middle-income Marketplace enrollees pay for their health insurance coverage.