Premium decreases may actually hurt more ACA enrollees

The decrease in the price of a benchmark plan drives down subsidies, leaving some consumers paying even more for cheaper plans.

By Jack Craver |December 06, 2018 at 10:45 AM

A new analysis shows strong signs of improvement in the Affordable Care Act marketplace but warns that things may have actually gotten worse for customers in the greatest need.

The analysis by the Robert Wood Johnson Foundation finds that the number of counties with only one ACA insurer will decline from 50 percent to 35 percent in 2019, based on plans submitted by insurers earlier this month.

The increased competition should push down prices, writes Katherine Hempstead, a senior policy adviser at RWJF. However, the lower sticker price may not help the many ACA customers who qualify for premium subsidies. In fact, it may lead to them paying more.

Here’s how it works:

The federal government determines the size of a customer’s subsidy based on the person’s income and the price of the “benchmark” silver plan in their county. The person’s income determines the maximum they will pay for a premium. The government then provides the gap between that figure and the price of the benchmark plan. So if a person’s out-of-pocket maximum is capped at $50 a month but the benchmark plan costs $300 a month, that person receives a $250 subsidy.

However, the individual does not have to use that subsidy to buy the benchmark plan. They can use it to purchase an even cheaper “bronze” plan, which may leave them paying no premium at all. This is the route that many low-income ACA customers have opted for in recent years, and it helps explain why premium hikes has not hurt enrollment among subsidized customers.

Somewhat perversely, the decrease in the price of the benchmark plan in some markets ends up hurting subsidized customers. The amount they are provided in subsidy goes down, often leaving them paying more for their bronze plans.

“Overall, in about 70 percent of (federally facilitated marketplace) counties with a new carrier, subsidized enrollees will lose purchasing power, while in about 66 percent of these counties, unsubsidized customers will see premium reductions,” explains Hempstead.

In Philadelphia, for instance, customers who don’t qualify for subsidies should be celebrating. The price of the benchmark plan fell by a whopping $200, from $635 to $435. The cost of the cheapest bronze plan also fell from $400 to $370.

However, for subsidized customers in Philadelphia who were enrolled in the bronze plan, they will be paying much more than they were before. A 40-year-old who makes $36,420 a year (350 percent of the federal poverty limit) will now have to pay $254 a month next year, up from $101 a month in 2018.

Hempstead concludes: “In the longer run, the competition that comes from increased carrier entry is almost certainly beneficial, and increased choices for consumers have a value that cannot be measured. Nevertheless, while in many markets unsubsidized consumers will see premium reductions, many subsidized consumers will lose purchasing power, and it remains to be seen how these changes will be reflected in overall enrollment.”