With premiums in the health insurance marketplaces a hot topic over the past few months, we decided to do some analysis to see if we could sum it up.
It can be difficult to compare premiums because they vary by product, metal level, rating region, and state. Even the same benefit design can be priced differently by rating region within a state. Issuers may change offerings at open enrollment and individuals may have access to different options to choose from each year.
Kaiser Family Foundation (KFF) provides a chart of premiums for the second lowest Silver plan sold in a major market in each of the 50 states. This represents the “benchmark” plan that is used to calculate the level of subsidies available for an individual in this market. We extracted data from the KFF analysis and summarized percent change between 2016 -2017.
States on the left side had extremely high premium hikes (Phoenix, AZ – 145%; Birmingham, AL – 71%) and those on the right were more moderate (Fargo, ND – 9%; Cheyenne, WY – 9%) or very little (Manchester, NH – 2%, Little Rock, AR – 1%).
Those individuals with incomes between 138 – 400% of federal poverty level (FPL) were eligible to receive premium subsidies. For those purchasing the second lowest silver plan in their market, the change in their premium responsibility would be the second number depicted here – for most 0%. Consumers are generally shielded from premium changes because the subsidy amount tracks with the change in price of the benchmark plan and subsidies are tracked to income
Those with incomes over 400% of FPL would be subject to the full price of the premium increase.
The rate of premium increases varies a great deal across the metro areas highlighted in this chart and also across regions not listed here. So, the level of individual market stability varies a great deal as well. Some factors which could influence this variability:
Population health: Many of these markets may have a population accessing healthcare at a greater rate than initially expected.
Delayed reaction: Some markets had artificially deflated prices in the early years of the Marketplace as issuers competed on price to earn the greatest market share. After several years of slower-than-typical premium growth with potential losses. This led some issuers to “right-size” their premiums. (This was complicated by interactions with the risk corridors and risk adjustment listed below.
Federal liability for risk corridors: The government paid out only a fraction of the promised risk corridor payments to issuers. This led may issuers to incur unexpected losses on previous years’ business. In response they have adjusted premiums to account for higher potential risk.
Uncertainty around risk adjustment: The risk adjustment program is intended to provide a stabilizing affect to the market but compensating insurers with a higher level of risk by payments from insurers carrying a lower level of risk. Experience indicates that many issuers are still trying to effectively identify, manage, and adequately report their risk mix. The uncertainty as the market learns to work with the risk adjustment formula leads to a higher risk premium.
Market concentration: Many markets experienced a reduction in the number of issuers offering products on the Marketplace. This leads to greater pricing power to those that remain.
Health of the market before the ACA: The population in some markets may have had low rates of coverage and a long backlog of care. Other markets with relatively high market participation before the ACA (such as Massachusetts) have seen less rate volatility.