The Fruits of Objective Actuarial Communication

I remember when I first heard the phrase “actuaries inform public policy.” I thought, “Really?” I was an actuary and did not believe I was personally “informing public policy.” I spent most of my time performing mathematical calculations and refining technical assumptions. “How much credibility should I give the claims development method on the third most recent month?” was hardly a worthy contribution to the policy question of whether the premiums underlying those claims were developed in a laissez-faire free market, a highly regulated marketplace or a predominantly government-funded health care system.

Honestly, I really liked the sound of “actuaries inform public policy.” I really did. I wanted to understand it better. Years later, consulting engagements and social consciousness brought me to the front lines of important policy questions, and it has been a fun (and at times challenging), professionally fulfilling journey.

In my experience, actuaries can frequently bridge partisan divides when applying their actuarial expertise. That is not to say we all agree on political issues—quite the opposite. But actuarial best practice has an objectivity that can cut across partisan politics.

I suspect many actuaries are where I was a few years ago, not fully understanding such actuarial contributions but wanting to connect the dots better. I like to tell stories, and there is one with which I am familiar that illustrates our public policy contribution as poignantly as anything I have encountered.

Tackling the “Uninsured Rate”

The Affordable Care Act (ACA) was primarily designed to reduce the nation’s uninsured rate. The ACA individual marketplaces and state expansions of Medicaid eligibility were intended as on-ramps to coverage for Americans without employer-sponsored health insurance or existing eligibility for government programs (Medicare, Medicaid, etc.).

The ACA provided states the option to expand the eligibility of their state-managed Medicaid programs to include all low-income adults up to 138% of the federal poverty level (FPL), as opposed to the historical eligibility requirements, which had additional restrictions on eligibility, such as being pregnant or having a disability. As an incentive, the federal government offered a higher “federal match”¹ to states for the newly eligible Medicaid beneficiaries relative to the traditional rate for existing Medicaid beneficiaries.

For individuals with incomes above the FPL and ineligible for Medicaid, the ACA offers federal tax credits, which offset the cost of purchasing a commercial insurance plan in federally regulated insurance markets. These tax credits adjust with income and premiums so that the net price of a “benchmark plan” is an increasing sliding scale percentage of income, maxing out at 8.5%.²

In the tumultuous days following the passage and implementation of the ACA, some states’ decisions to expand or not expand Medicaid eligibility were politically charged and, at times, seemed to be driven more by politics than objective outcomes. The complexities behind the methodology used to determine premium tax credits also created market dynamics that did not as easily fall into political lanes. Still, they had a significant financial impact on ACA marketplace consumers.

Communicating the Texas Story

In recent remarks, President Biden celebrated that “four out of five folks who sign up for health insurance through the ACA can get health care coverage for $10 a month or less.” Figure 1 illustrates the percentage of enrollees with access to free gold-level coverage each year. The federal subsidy amount now covers the entire premium for some plans. A gold plan is the second-highest of the four coverage tiers available on the exchange (meaning these are relatively high-quality commercial plans with lower member cost-sharing requirements than lower-tier plans).

There is a fascinating actuarial story underlying the president’s comments and this beneficial marketplace change. Because insurance premiums are regulated at a state level and tax credits are linked to market prices, improved affordability in ACA marketplaces is generally the result of changes in state-level premium dynamics when there are no significant changes at the federal level. Related to the improved consumer value that President Biden is celebrating, changes in the state of Texas explain much of the consumer value improvement in plan year (PY) 2023.

As the old saying goes, “there is nothing average about Texas.” This is arguably magnified in the ACA world. Texas has the second-largest insurance marketplace in the country and is the state with the highest uninsured rate, as shown in Figure 2.

Texas is not known for seeking health policy solutions through the ACA. In fact, Texas has been regarded as the most antagonistic state toward the monumental legislation and led the high-profile lawsuit arguing that the “individual mandate” rendered the ACA unconstitutional. Texas is one of a small and declining number of states that has not expanded Medicaid eligibility under the ACA. Texas decided early on not to be a regulatory partner and had been one of only three states without an effective rate review process. If there is one state that had a reputation for obstructing the ACA in the law’s first decade, it was Texas. If there were a state where objective actuarial communication would have been considered fruitless in advancing ACA policy, some stakeholders would have said “Texas” just a few years ago.

Our current story begins with an actuarial model that informed a web-based policy tool named the Texas 2036 Health Coverage Policy Explorer. Texas 2036 is a nonpartisan policy organization with a mission to “enable Texans to make policy decisions through accessible data, long-term planning and statewide engagement.” The model did not recommend policy solutions; it objectively modeled the impact of various policy choices and left the determination of policy decisions to users.

The tool provided cost and coverage estimates for several policy options aiming to reduce the state’s uninsured population. The options included expanding Medicaid under the ACA, more limited Medicaid expansions, conducting a focused rate review, developing a state-based ACA exchange and various Section 1332 waiver considerations. The output for each policy option was generally the impact on the uninsured rate and required federal and state financial contributions.

The “focused rate review” option was the one that gained policymakers’ attention due to the attractive tradeoff between state costs and the projected reduction in the uninsured rate. The actuarial model sloped market premium relationships to be aligned with actuarial value in accordance with the ACA’s single risk pool requirements; these premium change dynamics resulted in lower bronze and gold premiums and higher subsidy-determining silver premiums. A bill was constructed to implement a focused rate review. The legislative summary states that “the resulting misalignment of premiums has caused Texans to lose out on hundreds of millions of dollars in federal marketplace subsidies, making coverage less affordable.”

Notably, the bill’s author, Democratic Senator Nathan Johnson, recognized how objective analysis could potentially advance a policy goal along a delicate path. He relied partially on Charles Miller, a senior policy adviser at Texas 2036 and former aide to the current Republican governor, to help prevent the legislation from being considered partisan. Miller relayed the Texas story at an award-winning session³ at the Society of Actuaries Health Meeting in Philadelphia in the summer of 2022.

Sen. Johnson remained single-mindedly focused on rate review, not sharing the same optimism that objectivity would overcome resistance to the “ideological inertia” of the Medicaid-related options in the policy tool. While Sen. Johnson was crafting his bill, Texas legislators also became aware of improved consumer value and positive experience in neighboring New Mexico after the state addressed similar concerns of plan premium variances reflecting population characteristics rather than benefit differences and issued single risk pool regulations that required “each metal level’s premium to reflect the statewide characteristics of all individual market enrollees.”

In 2021, the Texas law was passed unanimously in both legislative chambers and signed by the governor. It not only established effective rate review at the state level but also directed the Texas Department of Insurance (TDI) to align the premiums of each benefit plan with coverage generosity. Texas 2036 noted in comments to TDI on an informal rule on SB 1296: “TDI should develop and issue clear guidance to accompany the rule that directs health plans offering products in the individual ACA market to use appropriate and consistent rating factors and assumptions, as other states have. Useful state models include successfully implemented rate review provisions in Pennsylvania and New Mexico.”

Communicating the Texas Results

The people in Texas now have access to more generous ACA benefits than people in most other states. It’s not because Texas is a red state or a blue state. It’s not because Texas does or does not support the ACA or has different policy ideals than other states. This bipartisan policy passed unanimously because an organization in Texas sought to develop an objective, actuarially informed policy tool to reduce the uninsured rate and remove partisan subjectivity. The result is that the state now has one of the strongest marketplaces in the country.

Figure 3 illustrates the lowest gold/silver premium relationships in the 17 states with the lowest ratios in 2023. A lower gold/silver ratio is generally a good indicator of positive consumer value because subsidies are calculated off of silver plan premiums. When the gold/silver ratio is low, consumers can use their silver-derived premiums to purchase a gold plan for low-to-no cost. The rows in green reflect federal rate review states (reviewed by the Centers for Medicare and Medicaid Services in states without effective rate review). In contrast, the blue and purple rows indicate states that have implemented premium alignment rules.⁴

The newly prescribed rules in Texas “will provide carriers greater certainty, improve compliance, add stability to the marketplace and increase consumer purchasing power.” Texas has joined other states by moving toward greater adherence to the ACA regulations, resulting in lower-income residents reaping benefits as premium differences “reflect differences in generosity of plan coverage” as the ACA was initially intended. Early 2023 results indicate 32% enrollment growth in Texas, higher than in any other state. Partially buoyed by a higher proportion of low-income residents,⁵ Texas enrollees have greater access to free gold coverage than enrollees in other states by a wide margin. Figure 4 illustrates the percentage of enrollees with access to free gold-level coverage in each federal exchange state in 2022 and 2023.

Other states seeking to address the misalignment of ACA premiums and improve coverage levels may look to Texas for guidance, although they might look first to objective information from actuaries. As I wrote last year, an actuarially informed policy tool “led a state legislature to change course on the ACA through logical transparency rather than strong-armed will. Other states should take note. Transparent and objective data can change policy if separated from politics.”

Conclusion

The state with the highest uninsured rate and the second-largest marketplace had the strongest reputation of being hostile toward the ACA law just a few years ago. Now it arguably offers the nation’s best consumer value. Legislation that implemented an effective rate review process was passed through unanimous votes in both legislative chambers without objection from even the most vocal ACA critics or supporters. Strategically, the bill was accurately portrayed as helping Texans and the local insurance market rather than as endorsing the ACA, a policy win for the governor or supporting any presidential administration.

Objective actuarial communication informed public policy, intentionally substituted by the bill’s author to attempt to steer clear of the political commentary that often accompanies policy discussions. The Texas law is evidence that the seeds of objective actuarial communication can bear fruit in unexpected soil.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.

Copyright © 2023 by the Society of Actuaries, Chicago, Illinois.