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Texas, known for its implacable hostility to the Affordable Care Act, is now taking steps to ensure a better-functioning health care marketplace for the state’s residents.
The latest state to take strong action to improve affordability in its ACA marketplace is … Texas?
The Lone Star State, remember, is one of 12 states that have refused to enact the ACA Medicaid expansion, thus denying almost a million of its own residents health insurance funded almost entirely by the federal government. What’s more, until 2021, it was one of just three states to refuse to actively regulate its own ACA marketplace at all. That meant it ceded rate review (that is, scrutiny of insurers’ proposed annual premiums and authority to accept or reject them) to the federal Centers for Medicare & Medicaid Services (CMS).
The Medicaid expansion is still dead in the water there. But last June, Texas’s legislature unanimously passed, and Gov. Greg Abbott signed, a bill (S.B. 1296) that not only established state rate review for the marketplace, but also effectively directed the Texas Department of Insurance to mandate that all insurers price their gold plans well below the price of their comparable silver plans, and also increase the margin by which bronze plans are priced below silver.
If that sounds bizarre, you are right. Texas is taking advantage of odd quirks in the Affordable Care Act’s design to get dirt-cheap exchange coverage for its residents. Other states could stand to learn from its example.
But let me explain some background details first. Below 200 percent of the federal poverty level (that is, $25,760 for an individual or $53,000 for a family of four in 2022), benchmark silver plans on the exchanges are both very cheap—costing nothing up to 150 percent of FPL, and just 0 to 2 percent of income between 150 and 200 percent of FPL—and further enhanced with cost-sharing reduction (CSR) subsidies, which make them roughly equivalent to platinum plans.
At incomes over 200 percent of FPL, however, the marketplace’s offerings will be greatly improved by Texas’s new state-enforced pricing regime.
More than two-thirds of Texas enrollees in ACA plans (69 percent) have incomes below 200 percent of FPL. But thanks to the more generous subsidies created last March through 2022 by the American Rescue Plan—which removed the prior income cap on subsidy eligibility—2022 enrollment in Texas grew fastest at higher incomes. Enrollment at incomes over 200 percent of FPL rose 57 percent, to 566,000. Those enrollees stand to gain most by the change in law. At higher incomes, silver plan deductibles average over $4,500 (though many services are not subject to the deductible). Gold plan deductibles, by contrast, average $1,600.
When Silver Is Worth More Than Gold (and Vice Versa)
So if gold plans have lower deductibles, why should they be cheaper than silver plans? As mentioned above, for low-income enrollees, CSR raises the value of silver plans (by reducing out-of-pocket costs) to a roughly platinum level, with average deductibles under $200 for the lowest-income enrollees and $800 at the next level (150 to 200 percent of FPL). In Texas, 89 percent of silver plan enrollees have incomes below 200 percent of FPL, and so the average silver plan sold in the state really does match a platinum-level “actuarial value,” or the percentage of the average enrollee’s costs the plan is designed to cover.
During the Obama administration, the federal government reimbursed insurers directly for providing CSR, and silver plans were priced as if no CSR were attached. When Trump abruptly cut off those direct CSR payments in October 2017, however, almost all state regulators responded by allowing or encouraging insurers to price the value of CSR directly into silver plans—a process that came to be known as “silver loading.”
Here’s where the quirk comes in. Because ACA premium subsidies, designed so that the enrollee pays a fixed percentage of income, are set to a silver plan benchmark (specifically, the second-cheapest silver plan), higher silver premiums mean higher premium subsidies across all plans—and discounts for subsidized buyers in bronze and gold plans.
Maximizing the Silver Load
But silver loading has stopped halfway. As the author of the “focused rate review” bill, Texas state Sen. Nathan Johnson, points out in the bill analysis, “insurers have not approached silver loading in a uniform manner. 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.”
Why? Since a majority of marketplace enrollees have incomes below 200 percent of FPL, silver is still the most popular metal level, and so when insurers are in a competitive market, the price of a silver plan gets competed down (though when there is just one insurer, or a dominant insurer, they can and do take advantage of the rules, often to create huge discounts).* In most of the country, gold plans are still priced well above silver, and bronze plan discounts are not as big as analysts (including the Congressional Budget Office) expected them to be when anticipating Trump’s cutoff of direct payments for CSR. A handful of states, however, have effectively ordered insurers to fully price the value of CSR into silver plans.
With Johnson’s bill, Texas joined them. S.B. 1296 directed the Department of Insurance to, as the bill analysis phrases it, “focus its rate review in a manner that uniformly maximizes the benefits of silver loading, making coverage more affordable.”
On March 28, the Texas Department of Insurance issued a proposed rule to flesh out that legal directive. The rule directs insurers to use a “CSR pricing factor” of 1.35—that is, to price silver plans at 1.35 times what they would charge if there were no CSR. That rule effectively prices silver plans close to a platinum level. Gold plans are generally priced at about 1.2 times the cost of silver with no CSR.
The CSR pricing factor is slightly below the level implemented in 2022 in New Mexico, 1.44, which led to the lowest-cost gold plan in each rating area being priced an average of 11 percent below the benchmark silver plan. In New Mexico markets, several gold plans are priced below benchmark. Accordingly, in 2022, 69.5 percent of New Mexico enrollees with incomes above 200 percent of the federal poverty level chose gold plans, compared to 24.4 percent of Texas enrollees above the same threshold.
The ACA: No Longer the Enemy in Texas?
How did a state known for implacable hostility to the ACA—the lead plaintiff in a failed last-ditch effort to get the law struck down by the Supreme Court—get to the point of taking positive action to increase the value of plans sold in the ACA marketplace? The story begins with a pair of politically conservative actuaries, Greg Fann and Daniel Cruz of Axene Health Partners, who have worked effectively as statehouse evangelists for maximal silver loading—or, as they prefer to call it, “premium alignment”—requiring insurers to price plans at different metal levels in strict proportion to their actuarial value. (On this front, they have been allies of Stan Dorn of the progressive health advocacy organization Families USA.) In this case, they teamed up with Charles Miller, a former aide to Gov. Abbott who now works at Texas 2036, a policy shop with the stated mission to “enable Texans to make policy decisions through accessible data, long-term planning and statewide engagement.”
As Fann relates:
Mr. Miller, an attorney by background, deserves credit for not leading with a persuasive argument. Instead, he put an actuarially-informed policy tool on his organization’s website and told state legislators to play with it. They did. And it worked.
The tool (“actuarially-informed” in large part by Fann and Cruz) provides cost-and-results estimates for several policy options aiming to reduce the state’s uninsured population. The options include full Medicaid expansion under the ACA, more limited Medicaid expansions, creating a state-based ACA exchange, and creating a reinsurance program for the state marketplace.
While rejection of the ACA was long a point of pride in Texas, the state uninsured rate—estimated by the tool at 17.3 percent, the highest in the nation—is not. It’s “a problem everyone in Texas is sensitive about,” Miller said. Bill author Johnson agrees. The uninsured rate, Johnson said, is “a real sore point. Businesses are acutely aware of it, health care systems are acutely aware of it, everyone is embarrassed by it.”
The big enchilada, and plainly the most cost-effective option showcased by the Texas 2036 tool, is Medicaid expansion—which would reduce the state’s uninsured population by nearly a million, pull in $5.33 billion in federal dollars, and cost the state just $1.62 million in net spending in 2025, according to the Texas 2036 estimate.
But Republicans won’t take that deal. “I have bloodied my head against a brick wall for Medicaid expansion,” Johnson said. “Republicans forever want to believe that there’s a way not do expansion and get the same results. There’s no way.” But hewing to the art of the possible, Johnson turned every option showcased in the Texas 2036 tool into a bill.
A sleeper in the policy tool—and the only option Johnson wasn't already working on—was one that on its face was meaningless to almost everyone: “conduct focused rate review.” The results, however, caught Johnson’s eye:
A billion dollars in federal money at a cost of relative pennies to the state. More than 200,000 newly insured, and no new taxes. Who could turn that down?
“Focused rate review” is an anodyne term denoting the strict silver loading mandated by S.B. 1296. Johnson says that he relied on the credibility of Texas 2036, and Miller specifically, to help sell the idea to Republicans. “Here’s someone who used to work for the governor, explaining to Republicans that this is consistent with their principles,” Johnson recounted.
What principles are those? First, reclaiming power from the federal government. Johnson explained that he told colleagues, “We ceded authority to the federal government” by refusing to do rate review. “We have the power to do things in a way we deem best for our people.”
The second principle was using the free market. With respect to Medicaid expansion, Johnson said, “Everyone knew that I was vocal in favor. Now here comes the same guy saying I get it, you don’t want it, don’t want to give people free health care, state-run health care, etc.—but what if we can get more people to buy their own health insurance?”
The fact that that argument now resonates in Texas may induce some vertigo. In the years immediately prior to the ACA’s passage, Democrats embraced the concept of a subsidized market of private health plans because they thought it could win Republican buy-in. The Republican response was a defining marker of our political era: ten years of vilification, legal assault, professed commitment to repeal, and sabotage (including, ironically, Trump’s cutoff of direct funding for CSR, in the immediate aftermath of which he famously proclaimed the ACA “virtually dead”). Eleven years later, in a bill read for the first time within two days of the ACA’s birthday, the “principle” of reducing the uninsured rate by making “free market” insurance more attractive to Texans appears to have resonated.
Seeking a Republican co-sponsor, Johnson and Miller focused on Tom Oliverson, a physician and chair of the House Insurance Committee. An archconservative, Oliverson has co-authored, sponsored, or co-sponsored bills to all but ban abortion, fight “voter fraud,” and obtain handguns without a license. He has also, however, taken the lead in a string of bills designed to increase health care access and affordability, most recently to reduce drug costs for the uninsured and tighten price disclosure requirements on health care facilities, both part of a bipartisan “healthy families” bill package that also included extending postpartum Medicaid eligibility to a year post-birth. Oliverson previously authored or sponsored enacted bills to strengthen balance billing protections for patients and require drug companies to disclose and justify drug price increases of 15 percent or more. In 2019, Texas Monthly named Oliverson one of Texas’s best legislators, noting that “he happily works with people from across the ideological spectrum.”
Why would a staunch conservative co-sponsor a bill to increase government subsidies in the ACA marketplace? Oliverson told me that he sees it as a worthy goal to “make the marketplace work as well as it can.” (He understands the competitive underpricing of silver plans as a market distortion.) He sees his current attitude toward the marketplace as “not a change per se, but thinking about it in a new way. I think we’re all strongly opposed to single-payer, see it as a dead-end street. We need a competitive, robust marketplace and want those options to be as attractive and competitive as it can be.”
The Trump administration’s encouragement of ACA-noncompliant alternatives, and stimulus to those markets, may have made this stance more palatable. Oliverson regards the ACA marketplace as “one tool in the toolbox. If the goal is to make sure that everybody can access affordable health care, that can mean a huge variety of things”—including religious health sharing ministries, association health plans, lightly regulated short-term plans, and direct-pay primary-care programs. Oliverson cited his authorship of a bill, passed in 2021, that authorized the Texas Farm Bureau to offer a health plan—technically not insurance, and not regulated as such.
All of these alternative forms of health coverage are seen by progressives as potentially exposing people to catastrophic health care costs and weakening the ACA-compliant market by draining healthier people out of the risk pool. The enhanced premium subsidies for marketplace plans provided through 2022 by the American Rescue Plan soften the impact of these alternatives by making comprehensive coverage in the marketplace more affordable to more people. Failure to extend the ARP subsidies—now looming as a real possibility as Democrats’ attempts to revive some remnant of the Build Back Better bill continue to founder—would send more people into these lightly regulated alternatives.
In either case, the ACA-noncompliant markets may smooth the path to Republican acceptance of the ACA marketplace as a permanent part of the U.S. health care system. As Oliverson puts it, “I want all of the above. I’m not praying for the ACA to fail just so I can say it’s a bad idea. It is what it is, and it’s not going anywhere. It is a good tool in the toolbox.”
“A good tool in the toolbox.” Spoken by “one of the Texas House’s most conservative members,” according to the National Conference of State Legislatures. Someone pinch Max Baucus.
*Some analysts also claim that the federal government’s risk adjustment formula for the marketplace, which compensates plans that enroll more high-risk patients and penalizes those with lower-than-average-risk members, unduly favors silver plans. A federal drive to mandate maximal silver loading might entail changes to the risk adjustment formula, which is constantly being tweaked.
