On August 24, 2016, the Health and Human Services Assistant Secretary for Planning and Evaluation (ASPE) released a report on "The Effect of Shopping and Premium Tax Credits on the Affordability of Marketplace Coverage."
Although insurers still have a month before they need to finalize their plans for participation in the marketplaces, they should have filed their final rates by August 23. The availability of these rates varies from state to state and all may not be available until November 1 when the marketplace opens.
There have been a number of reports recently, however, indicating that marketplace premiums are increasing sharply for 2017. Avalere Health, in a July report on 14 states found that premium increases will vary sharply from state to state but that lower-cost silver plans will increase about 8 percent. Charles Gaba reports on his ACASignups.net blog that as of August 14, the weighted average premium increase requested by marketplace qualified health plans in which individuals were enrolled for 2016 was 24.3 percent. Many of these increases of course have not been approved by states, and the requested increases are before shopping and before the application of premium tax credits.
The ASPE report does not provide any data regarding actual premium increases. What it does do is ask if, hypothetically, insurers increase premiums 10, 25, or even 50 percent, what impact would this have on consumers enrolled in the marketplace who qualify for premium tax credits.
The Effects Of Consumer Shopping For Health Plans
ASPE stresses two factors in answering this question. First, the marketplace allows consumers to shop for coverage — to move from higher- to lower-cost health plans. During the 2016 open enrollment period, 43 percent of 2015 enrollees switched coverage, saving an average of $42 per month, about $500 a year.
Of course, switching plans may mean moving to a plan with higher cost sharing and a narrower network, and may mean changing physicians or hospitals. Frequent and dramatic movements among plans also may make it more difficult for insurers to manage their business. And in a substantial number of rating areas only one insurer is likely to be available in 2017, sharply limiting plan switching.
But before the ACA many consumers with health problems had no affordable options available in the individual market. And the ease with which consumers can switch plans has made the marketplaces real competitive markets in many states, which should over time hold down premium increases.
The Effects Of Premium Tax Credits
A more important factor examined in the ASPE report is the effect of premium tax credits on actual costs that must be paid by consumers. The amount of the premium tax credit available to a marketplace consumer with modified adjusted gross household income (MAGI) not exceeding 400 percent of the federal poverty level is equal to the difference between the cost of the second-lowest-cost qualified health plan available to a consumer (for coverage of the essential health benefits) and the consumer's "required contribution." The required contribution is set as a proportion of the consumer's MAGI that increases as MAGI increases, currently up to 9.69 percent.
As premiums increase, therefore, premium tax credits go up, but the amount a consumer who enrolls in the second-lowest-cost silver plan must pay for coverage does not increase (except insofar as the required contribution percentage is adjusted annually). A consumer who enrolls in the lowest-cost silver plan or in a bronze plan may see the amount owed for the plan actually decrease if the cost of those plans increases more slowly than the cost of the second-lowest-cost silver plan. Moreover, as premiums go up, higher-income individuals with incomes not exceeding 400 percent of the poverty level who would not have been eligible for premium tax credits before the increases become eligible (although they may have to pay more for coverage before the tax credits begin to apply).
In 2016, 87 percent of marketplace consumers are eligible for tax credits. The ASPE report estimates that if premiums increase 25 or 50 percent for 2016, 88 percent would be eligible. The fact that premium tax credits cover premium increases for a substantial share of the market makes it unlikely that the marketplaces will experience a "death spiral" (in which premium increases drive healthy enrollees from the market causing the remaining market to collapse).
Premium tax credits make marketplace coverage affordable. In 2016, 70 percent of total marketplace consumers (APTC eligible and not eligible) could purchase a plan for $75 or less and 76 percent for $100 or less. If 2017 premiums increase 10 percent, 71 percent could purchase a plan for $75 or less and 77 percent for $100 or less. If premiums increase 25 percent, 73 percent could purchase a plan for $75 or less, 78 percent for $100 or less. The report also reports affordability on a state by state basis.
Of course, for consumers with MAGI exceeding 400 percent of the federal poverty level, a premium increase is a premium increase. And premiums are likely to increase outside the marketplaces at about the same rate as they do in the marketplaces because the entire individual market within a state is a single risk pool.
The HHS press release accompanying the ASPE report also notes that health care costs have grown more slowly since the ACA than they did before, that marketplace premiums were set in 2014 at levels below those that were anticipated, that significant premium increases for 2017 likely reflect a one-time attempt by insurers to catch up for rates set too low initially as well as the end of the reinsurance program in 2016, and that most marketplace enrollees are satisfied with their coverage.
from Health Affairs BlogHealth Affairs Blog http://ift.tt/2bPZDEq
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