Context is Key: Understanding Exchange Premium Rates

Aug. 14, 2014

Topics: Health Care Reform, Exchanges, Costs and Prices

Premiums for health plans sold through the health insurance exchanges are set to increase by 7.5% on average next year across the 27 states -- plus Washington, D.C. -- that have publicly released proposed rates, according to a report by PricewaterhouseCoopers' Health Research Institute.

The results vary between states -- with average premiums increasing by 15.4% in Indiana compared with a 2.5% average decrease in Oregon -- and within states. For example, Arizona's premium changes compared to 2014 rates range from a proposed decrease of 23% to a proposed increase of 27%.

When looking at such premium proposals, a bit of context is warranted. Average premiums have gone up every year for a long time -- including by about 10% annually in the three years before the Affordable Care Act was enacted, according to a Commonwealth Fund report -- and were expected to continue to rise after the ACA was passed. The question was, how much would they increase?

CBO projected an average increase for mid-tier exchange plans of 2.6% next year, while Dave Axene of the Society of Actuaries predicted somewhere between a 6% and 8.5% increase. Meanwhile, Avik Roy of Forbes' "The Apothecary" said insurers told him that there would be increases of about 20% to 40%.

As more information comes out about insurers' rate increases for the upcoming open enrollment period, proponents and opponents of the ACA will continue to use the data to bolster their talking points.

To help break through that noise -- or at least better understand the debate -- here are some helpful things to know:

  • Average Insurance Rates Vary By Geography, Other Factors

State and national averages of insurance premium increases are helpful to analyze trends, but less helpful in addressing the reality of what consumers experience, as plan availability and average insurance prices often vary from county to county. In addition, average insurance rates will be different for different types of consumers: individuals vs. families, smokers vs. nonsmokers and consumers of different ages. Further, insurers previously were able to charge consumers with pre-existing conditions more for coverage; under the ACA, they can't. However, the makeup of insurers' risk pools -- the balance of older/sicker members vs. younger/healthier members -- will affect rates, plan by plan.

  • Premiums Might Stay Steady or Decrease, But Consumers Might Still Pay More

Subsidies to help U.S. residents purchase exchange coverage are based off the second lowest-cost silver plan in insurance exchanges, which can change from year to year. Consumers who select exchange plans that cost less than the benchmark plan pay less after tax subsidies are considered, while consumers who select higher cost options pay more.

New benchmarks will mean that the size of people's subsidies will change, which could mean some U.S. residents will be responsible for larger shares of their premiums if they don't change their plans. HHS' proposal to automatically re-enroll the eight million U.S. residents who signed up for coverage during the initial open enrollment period could make that problem even worse, no matter what premiums are in the next OEP.

  • The ACA's Proponents, Opponents Often Use Different Metrics

There are two separate factors that might alter how some view premiums in the upcoming OEP.

1) Average Premiums: For Which Type of Plan?

Florida's state Office of Insurance Regulations announced that the state's premiums would increase by an average of 13.2% next year, while the Obama administration countered that most state residents purchasing coverage through the state's exchange would see their premiums decline. They both might be right. The state's data took into account all tiers of plans -- bronze, silver, gold and platinum -- while the administration focused on data that showed that 75% of state residents live in areas where the benchmark plan is set to decline, with the average benchmark plan decreasing by about 4% in the state.

2) Before or After Subsidies?

The PWC report found that, based on the proposed rates, the average monthly premiums for ACA plans in 2015 will cost about $384 before federal insurance subsidies are applied, and their data on average premium increases doesn't take subsidies into account either.

It's hard to make a comprehensive, accurate determination of the ACA's effects -- and the effects of premium increases on consumers' pocketbooks -- without taking subsidies into account. According to a June HHS report, U.S. residents who enrolled in coverage through the federal exchange pay an average of $82 per month, or 24% of the total premium, while the remaining 76% is offset by federal subsidies. Further, the report found that nearly 90% of U.S. residents who purchased coverage through the federal exchange received a subsidy.

However, there's a difference between affordability and cost. When premiums go up, subsidies might impact affordability, but the cost is still the same -- it just might be split between individual consumers and the federal government. Further, subsidies and premiums are not the only determinants of affordability, as out-of-pocket costs need to be taken into account as well.

The Months Ahead

There isn't one right way to present data on insurance rates, but there are lots of ways to present the information without the proper context or caveats. That will be important to keep in mind as states continue to release proposed rates prior to the Nov. 15 start of the upcoming open enrollment period.

by Joshua Zeitlin, staff writer