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An Ounce Of Prevention For The ACA’s Second Open Enrollment – Health Affairs Blog
I. Rate Shock
Premium subsidy calculations are based on household income and the benchmark premium (second-lowest-cost silver plan) available to each household. For the benchmark plan, a subsidy-eligible enrollee’s monthly contribution is based solely on the household’s modified adjusted gross income (“MAGI”); but for any other qualified health plan, the subsidized enrollee’s contribution is based on MAGI plus/minus the difference in premium between that plan and the benchmark.
There is a very high likelihood that the price and identity of the benchmark plan will change from year to year, as issuers adjust premiums, offer new, narrow network plans, enter new Marketplaces, and expand or contract service areas. A recent study of proposed premium changes in the largest city in each of nine states indicated a change in benchmark plans in eight of them. The impact on after-subsidy rates will be very significant.
Because subsidies are tied to a benchmark plan, the only way a subsidy-eligible consumer can ensure relatively stable premiums is to enroll in the benchmark plan each year. Consumers could even move to another state and pay similar after-subsidy rates, if they were committed to enrolling in the benchmark plan. However, consumers may resist changing plans each year, because they like their current plans, they like their current providers, and/or because of simple inertia.
The calculus is even more complicated for enrollees in non-benchmark plans. Since they contribute the rate they would have paid for the benchmark plan, plus or minus the difference in premiums between their plan and the benchmark, their monthly contributions will change if either the benchmark or their current plan’s premium changes. In other words, it is the difference between two moving targets that determines the net contribution for a subsidized household in a non-benchmark plan. This creates counter-intuitive results, as demonstrated in the following example.
A household of four, the Brown family, with MAGI of $35,000 — roughly 150 percent of the federal poverty level (FPL) – are expected to pay 4 percent of their income, or roughly $115 per month, toward the benchmark plan. In 2014, the Browns could pick from two silver plans, Plan A with a rate of $800 per month and Plan B (benchmark) with a rate of $850. After subsidies, the Browns had a choice of paying $115 per month for Plan B (benchmark) or $65 for Plan A. They chose Plan A, at $65.
Assuming rates for Plans A and B increase by 4 percent, but a New Plan C underprices Plan A, the benchmark changes from Plan B to Plan A. If the Browns’ MAGI remains unchanged (This is a simplified example and assumes no changes for age, income, and FPL), and they are auto-renewed or choose to remain in Plan A, their monthly contribution will increase from $65 to $115 per month, a 77 percent jump. Though this increase is substantial, the Browns have another option: New Plan C, which has a lower premium than Plan A. The Brown family should be made aware of the value of shopping for a new plan in 2015 and the cost of auto-renewing.
http://healthaffairs.org/blog/wp-content/uploads/Kingsdale-Table-1024x292.jpg
This is a very simple example. Yet we know, based on our detailed analyses for one state, that many consumers will face far more complex and daunting scenarios, as narrow networks replace broader ones, plans enter a market, and/or premiums simply fluctuate each year. Based on proposed regulations and corresponding guidance, individuals and families enrolled in Marketplace coverage will generally be auto-renewed into their current plan (or a similar plan from the same issuer, if the current plan is no longer available) unless they actively shop. (The Federally-facilitated Marketplace will also be applying 2014 advance premium tax credits (APTCs) in 2015, unless a redetermination is requested.)
Even before approving 2015 rates, and certainly once approved, states and stakeholders should analyze the specific dynamics, at the rating region and county level, to appreciate the premium changes that consumers will experience at renewal, including any decreases in subsidy that could result in additional tax liabilities at reconciliation.
I. Rate Shock
Premium subsidy calculations are based on household income and the benchmark premium (second-lowest-cost silver plan) available to each household. For the benchmark plan, a subsidy-eligible enrollee’s monthly contribution is based solely on the household’s modified adjusted gross income (“MAGI”); but for any other qualified health plan, the subsidized enrollee’s contribution is based on MAGI plus/minus the difference in premium between that plan and the benchmark.
There is a very high likelihood that the price and identity of the benchmark plan will change from year to year, as issuers adjust premiums, offer new, narrow network plans, enter new Marketplaces, and expand or contract service areas. A recent study of proposed premium changes in the largest city in each of nine states indicated a change in benchmark plans in eight of them. The impact on after-subsidy rates will be very significant.
Because subsidies are tied to a benchmark plan, the only way a subsidy-eligible consumer can ensure relatively stable premiums is to enroll in the benchmark plan each year. Consumers could even move to another state and pay similar after-subsidy rates, if they were committed to enrolling in the benchmark plan. However, consumers may resist changing plans each year, because they like their current plans, they like their current providers, and/or because of simple inertia.
The calculus is even more complicated for enrollees in non-benchmark plans. Since they contribute the rate they would have paid for the benchmark plan, plus or minus the difference in premiums between their plan and the benchmark, their monthly contributions will change if either the benchmark or their current plan’s premium changes. In other words, it is the difference between two moving targets that determines the net contribution for a subsidized household in a non-benchmark plan. This creates counter-intuitive results, as demonstrated in the following example.
A household of four, the Brown family, with MAGI of $35,000 — roughly 150 percent of the federal poverty level (FPL) – are expected to pay 4 percent of their income, or roughly $115 per month, toward the benchmark plan. In 2014, the Browns could pick from two silver plans, Plan A with a rate of $800 per month and Plan B (benchmark) with a rate of $850. After subsidies, the Browns had a choice of paying $115 per month for Plan B (benchmark) or $65 for Plan A. They chose Plan A, at $65.
Assuming rates for Plans A and B increase by 4 percent, but a New Plan C underprices Plan A, the benchmark changes from Plan B to Plan A. If the Browns’ MAGI remains unchanged (This is a simplified example and assumes no changes for age, income, and FPL), and they are auto-renewed or choose to remain in Plan A, their monthly contribution will increase from $65 to $115 per month, a 77 percent jump. Though this increase is substantial, the Browns have another option: New Plan C, which has a lower premium than Plan A. The Brown family should be made aware of the value of shopping for a new plan in 2015 and the cost of auto-renewing.
http://healthaffairs.org/blog/wp-content/uploads/Kingsdale-Table-1024x292.jpg
This is a very simple example. Yet we know, based on our detailed analyses for one state, that many consumers will face far more complex and daunting scenarios, as narrow networks replace broader ones, plans enter a market, and/or premiums simply fluctuate each year. Based on proposed regulations and corresponding guidance, individuals and families enrolled in Marketplace coverage will generally be auto-renewed into their current plan (or a similar plan from the same issuer, if the current plan is no longer available) unless they actively shop. (The Federally-facilitated Marketplace will also be applying 2014 advance premium tax credits (APTCs) in 2015, unless a redetermination is requested.)
Even before approving 2015 rates, and certainly once approved, states and stakeholders should analyze the specific dynamics, at the rating region and county level, to appreciate the premium changes that consumers will experience at renewal, including any decreases in subsidy that could result in additional tax liabilities at reconciliation.
