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Implementing Health Reform: Premiums And Choice In The 2014 Health Insurance Marketplace (Updated)



June 18th, 2014

Note: This post was updated on June 18, 2014, to discuss the “From Coverage to Care” campaign and a Supreme Court decision tangentially related to the Affordable Care Act and abortion coverage, and on June 20 to discuss frequently asked questions posted by CMS at its REGTAP site.

In the fall of 2013 the headlines were full of stories of individuals facing steep premium increases as the Affordable Care Act’s market reforms went into effect. The question was raised repeatedly whether Affordable Care Act premiums were really affordable. Commentators observed that major national commercial insurers were avoiding the exchanges and that in some states the ACA marketplace offered few choices and little competition.

On June 17, 2014, the Health and Human Services Assistant Secretary for Planning and Evaluation (ASPE) released a report surveying Premium Affordability, Competition, and Choice in the Health Insurance Marketplace, 2014. ASPE examined over 19,000 2014 marketplace plans within the four bronze, silver, gold, and platinum metal levels in each of the 501 geographic rating areas in the 50 states and the District of Columbia; the office analyzed premium levels, available choices, and market variables that might affect cost. It is always possible to find negative anecdotes (particularly if one is not too careful in checking their veracity), but when we look beyond anecdotes at the actual data, it is clear that the ACA was largely successful in achieving many of its goals for 2014.

Premiums. One of the primary goals of the ACA is to make health insurance affordable to lower-income Americans. During the 2014 open enrollment period, 5.4 million individuals selected a plan in the 36 states served by the federal exchange (which are the states primarily covered by the report since state exchange data is still being assembled and analyzed). According to the report, 87 percent of these individuals qualified for a premium tax credit. They paid a premium that was, on average, 76 percent less than the full premium that they would have owed before the premium tax credit was applied.

Only 18 percent of individuals with premium tax credits paid more than $150 a month after the credits were applied. Sixty-nine percent had premiums of $100 a month or less after the tax credits were applied; 46 percent had premiums of $50 or less. Health insurance for $50 a month is by almost any standards affordable.

Under the ACA, premium tax credits are based on the difference between a specified percentage of a specific individual’s modified adjusted gross household income — set on a sliding scale between 2 and 9.5 percent for individuals with incomes between 100 and 400 percent of the poverty level — and the cost of the second-lowest cost-silver (70 percent actuarial value) benchmark plan offered by the marketplace in the geographic area where the individual resides.

The amount that individuals with the same household income have to pay for the benchmark plan is thus the same anywhere in the United States, as long as their household income is below 400 percent of poverty. Any individual earning $22,980 a year (200 percent of the poverty level) will pay $121 for the second lowest-cost silver plan, no matter where that individual lives. But premiums vary from market to market; thus, the premium tax credit (the difference between the second-lowest-cost silver plan and a percentage of income) varies from market to market.

An individual is not required to use a tax credit for a silver plan, but can rather use it for a cheaper bronze or a more costly gold or platinum plan; therefore, average amounts paid by individuals for coverage vary from state to state based on the plan choices those individuals make. In some market areas, premium tax credits were large enough to permit individuals to purchase a bronze plan for free and to substantially reduce the cost of a plan with higher actuarial value.

The average premium for persons with tax credits who selected a marketplace plan at any metal level before tax credit assistance was $346, though average premiums varied from $289 for bronze plans to $452 for platinum plans. Average premiums before tax credits varied by state from $536 in Wyoming to $243 in Utah. The average cost after tax credits were applied was $82, varying from $68 for bronze and $69 for silver plans to $220 for platinum plans. Average costs after tax credits varied from $148 in New Jersey to $23 in Mississippi. Premiums were reduced on average 80 percent for purchasers of silver plans.

Not surprisingly, within each metal level individuals tended to select plans with the lowest premiums. At the silver level, 43 percent of consumers chose the lowest-cost silver plan; 22 percent the second-lowest-cost (benchmark) silver plan. Fifty-four percent chose the lowest-cost or second-lowest-cost plan at the gold level, while 93 percent chose the lowest-cost or second-lowest-cost plan at the catastrophic level.

Plan choice. The ACA exchanges also performed well during the first year in achieving their goal of promoting choice and competition. A total of 266 state-licensed insurers offered marketplace plans across the country, with the total per state varying from 16 in New York to only 1 in West Virginia and New Hampshire. (National insurance companies must be licensed in each state in which they do business, so a national company would be counted separately for each state in which it does business). New entrants (a majority of which were consumer-operated and oriented plans (CO-OPs) or former Medicaid-only plans) constituted 26 percent of insurers.

Prior to the ACA, state individual health insurance markets were heavily concentrated. In 46 states, two insurers covered more than half the market, and in 11 states, the largest two insurers covered 85 percent of the market. The ACA has begun, therefore, to introduce competition into the nongroup market.

The ACA divides the country into “rating areas” and allows insurers to vary premiums by rating area based on the claims costs in those areas. The number of rating areas varies by state: Vermont and Rhode Island have only one; Florida has 67, one for each county; on average, states have 10 rating areas. In 2014, eighty-two percent of people eligible to purchase a market place plan live in a rating area with at least 3 insurers; 96 percent in a rating area with at least 2. Fifty-six percent can chose among five or more insurers.

On average, 2014 consumers eligible to purchase a marketplace plan can choose from 47 plans (including 16 silver plans) offered by 5 insurers in their rating area. This range of choice is far more than that available to most employees in employer-sponsored insurance, where 24 percent are offered only one insurer, and 25 percent only two, to choose among. Ironically, the states with the most choice measured by the number of plans were Wisconsin and Florida, two states whose leadership has opposed the ACA.

Competition and other factors influencing premiums. If the ACA is to make health insurance more affordable, we must understand the mechanisms through which this may be achieved. The report examines the effect of various factors, including competition, on premium levels. Differences in premiums were studied considering the benchmark premiums (the second-lowest-cost silver plan premium in a rating area), all premiums, and a measure of premium dispersion. The benchmark premium is particularly important, since most (65 percent) consumers who selected a marketplace plan chose a silver plan, and because the benchmark plan determines the level of premium tax credits, and thus the cost of the program to taxpayers.

Premiums under the ACA vary by age in all states except for New York and Vermont, where state law prohibits age rating. The average benchmark silver plan for a 27 year-old cost $219 per month in age-rated states. The second-lowest cost plan in the Minneapolis area for a 27-year old cost $127 a month before premium tax credits, comparing very favorably with the average cost per employee of a small group plan in Minnesota in 2013 of $446 per month. The average premium before tax credits for a 40-year old in age-rated states was $371; for a 60-year old, it was $584.

Although most of the information in the report pertains only to federal exchange states, the report does include average benchmark premiums by age group for state and federal exchange states, and they are very similar. For 27-year olds, the average premium for state-exchange states is $225; in federal exchange states, it is $216. Average premiums also are virtually identical between states that expanded Medicaid ($219) and states that did not ($218).

The key factor in explaining variation between premium costs for benchmark plans seems to be the number of insurers in a rating age. On average, adding one new insurer to a rating area reduced premiums by 4 percent. ASPE looked at several other factors that might influence premium prices, including the percent of insurers in a rating area that were “established” and thus had experience and provider networks in the area; the entrance of CO-OPs; and hospital market concentrations, as well as other factors. A greater percentage of established insurers in a market seems to reduce the costs of the benchmark plan, although this finding was not uniformly statistically significant. Hospital market concentration did not have a statistically significant association with benchmark plan price.

When average premiums at all levels were examined instead of just the benchmark plan premium, however, different correlations were found. The absolute number of insurers in a market did not significantly affect the average premium charged a 27-yar old by metal level, apparently because markets with more insurers had greater premium variability — both higher and lower premiums within a metal level. Areas with more concentrated hospital markets had higher average premiums, while a higher percentage of established insurers in a state correlated with lower average premiums at each metal level.

On average, HMOs tended to have lower premiums than other types of plans, as did CO-OP plans. As the CO-OP program was created to increase competition and lower premiums, this is another sign of ACA success. Rating areas with more competing insurers are more likely to offer HMO or CO-OP plans.

The state marketplaces. While we still have very incomplete information on the 2015 marketplaces, in every state that has reported so far, new insurers are entering the marketplaces. Premium rates that have filed so far vary significantly, but they tend to be in the single or low double-digit range, consistent with premium increases before the ACA was adopted. These filed rates may well decrease after being reviewed by regulators. There is every reason to believe that the disastrous rate hikes predicted by some for 2015 are not going to happen.

Federal spending. The report does not address the total cost of the premium tax credits to the federal Treasury, although estimates can be drawn from the numbers included in the report. The total cost of the premium tax credit program for fiscal year 2014 (through September 2014) should come in close to the $10 billion projected by the Congressional Budget Office in its April, 2014 baseline. Premium tax credit costs are higher, of course, than they would have been had all states expanded Medicaid to cover all individuals with incomes below 138 percent of the poverty level, as required under the ACA as passed.

Outstanding questions. The report does not answer a number of other pressing questions. How many individuals who signed up for plans are paying their premiums? How high is the cost sharing faced by enrollees? Although premiums may be affordable, is health care itself affordable? Can enrollees find available providers in narrow-network plans? Do they have access to the drugs they need?

One question that is particularly important that the report fails to address is how many enrollees are receiving cost-sharing reduction payments, and what effect this is having on access to care. The data in the report, however, suggests that many individuals received cost-sharing reduction payments, which dramatically reduce deductibles.

It is apparently harder to find data to answer these questions, and it may be some time before we know the answers. In the meantime, it is easy to find anecdotes (true or false) suggesting that the ACA is wreaking disaster. One lesson we should draw from the ASPE report, however, is that data is not the plural or anecdote, and that overall the ACA’s results may be much more encouraging than widely reported individual stories, or even local data, might lead us to believe.

Other ACA Developments

From coverage to care. In other developments, on June 16, 2014, the Department of Health and Human Services launched a “From Coverage to Care” campaign. The campaign described in blogs in both English and Spanish,  is an attempt to help the newly insured understand their coverage and learn how to use it.

The campaign includes a colorful, easy to read, booklet titled “Roadmap to Better Care and a Healthier You” that helps consumers understand their insurance plan (including a glossary of insurance terms), explains how to find a provider and make an appointment, and informs consumers how to prepare for a visit to a physician and follow up on a physician visit. A particularly useful section of the booklet explains when it is appropriate to use the emergency room and when it is not. The campaign also provides other resources at the C2C website, including videos and posters.

One concern about the booklet is that it suggests that every newly insured individual should see a primary care physician to establish a relationship and get a physical exam. While this is in general good advice, the booklet fails to mention that while some services that may be provided in a primary care visit may be preventive services, provided without cost  (including a well-woman visit), physicians are likely to charge for other services. For many enrollees, even with low-deductible plans, some part of the primary care visit could be subject to the deductible, which is to say the full cost of services other than preventive services would be borne by the patient. The booklet mentions copayments as a potential issue in primary care visits, but does not describe the effect of the deductible on the use of services.

Abortion and the ACA. On June 16, 2014, the United States Supreme Court also decided a case incidentally related to the ACA: Susan B. Anthony List v. Driehaus. In the 2010 election, the Susan B. Anthony List, an anti-abortion advocacy group, made statements that then-Congressman Steve Driehaus, had “voted FOR taxpayer-funded abortion” in voting for the ACA. Driehaus filed a complaint with the Ohio Election Commission, claiming that this statement violated the Ohio election law because it made “a false statement concerning the voting record of a candidate or public official” and was a “false statement concerning a candidate,” made by one “either knowing [the statement] to be false or with reckless regard of whether it was false or not.” Violation of these prohibitions carries potential criminal penalties.

The Commission panel voted 2 to 1 to find probable cause that a violation had been committed and scheduled a hearing. The Susan B. Anthony List then filed a lawsuit in federal court claiming the proceedings were unconstitutional. Before the Commission reached a final decision, Driehaus lost the election and dismissed his complaint. The federal court held that Susan B. Anthony had no further case since the complaint was no longer pending. The Sixth Circuit Court of Appeals affirmed the lower courts decision.

The unanimous Supreme Court decision, written by Justice Thomas, holds that there is enough of a threat to the Susan B Anthony List from future enforcement of the election law that it has standing to challenge the law at this point. The Court did not decide whether the statute is constitutional, which will be left in the first instance to the lower court on remand. It did not decide whether the claim concerning Congressman Driehaus was true or false, and certainly does not decide whether the ACA provides “taxpayer-funded abortion.” That question may eventually be decided, but was not before the Court.

REGTAP frequently asked questions. While the administration has largely taken a break from issuing new regulations with the end of the 2014 open enrollment period, CMS continues to issue a steady stream of guidance at its REGTAP.INFO website. On June 18, 2014, for example, it issued 24 new frequently asked questions (FAQs) at REGTAP. The material at REGTAP is aimed primarily at insurers, but many of the issues that CMS addresses there are immediately relevant to consumers, providers, and certainly regulators. Although one must register to use the site, it is a painless process and the site is easy to access once registered if one can remember usernames and passwords. (The site only gives you three chances to login and then locks you out.)

The June 18 FAQs address a variety of topics, but most of them address complications that have arisen in the enrollment process. FAQ 2372  for example sets out a series of steps insurers should follow if a consumer claims to be enrolled with the insurer but the insurer has no record of the individual. FAQ 2374 provides that an insurer may reinstate an enrollee who was erroneously cancelled or terminated for nonpayment of premiums. FAQ 2375 clarifies that medical need alone does not qualify a person for a special enrollment period, although an individual may qualify for a SEP if the individual missed the open enrollment cut-off date because of a medical emergency.

FAQ 2378 provides that if the parents in a family of four are determined eligible for qualified health plan coverage but the children are denied because they are assessed to be eligible for Medicaid, but then the children are later determined ineligible for Medicaid, the insurer itself cannot provide coverage to the children retroactively, but the family can appeal. Under FAQs 2382 and 2383 insurers are instructed to determine tax credit and cost-sharing reduction payment eligibility based on the 834s or pre-audit files they receive from CMS, even if the consumer believes that the amount is incorrect or that he or she is being improperly denied assistance. In these situations, the insurer can check with the CMS casework help desk but should otherwise direct the consumer to appeal the decision or to seek assistance from the state consumer assistance program. Other FAQs deal with the CMS casework process.

Perhaps the most enigmatic FAQ is 2266. Under the ACA, federal premium tax credits cannot pay for abortion coverage. Enrollees in plans that cover abortion must pay an extra premium that will fully cover the cost of abortion coverage, which must equal at least $1 a month. About half the states prohibit abortion coverage through the exchanges and most states offer some plans that do not cover abortion, although they are often hard to identify.

If enrollees are enrolled in plans that do cover abortion, however, they must pay for that coverage, even though their premiums are otherwise entirely covered by the premium tax credit. The problem then arises whether an individual with a $0 premium who fails to pay the $1 a month for abortion coverage can be terminated from coverage altogether. The FAQ seems to say that insurers can pursue collection of the $1 separately, a reasonable result, but it certainly does not say so clearly. It would be helpful if CMS and health plans would be much more transparent on the issue of abortion coverage.

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1 Trackback for “Implementing Health Reform: Premiums And Choice In The 2014 Health Insurance Marketplace (Updated)”

  1. More Young Adults Get Inpatient Psychiatric Care After Health Law « AHC-Exchange.com AHC-Exchange.com
    June 21st, 2014 at 12:43 pm

2 Responses to “Implementing Health Reform: Premiums And Choice In The 2014 Health Insurance Marketplace (Updated)”

  1. John Lynch Says:

    Whatever Obamacare’s failings, they are rooted entirely in its abandonment of a single-payor solution. All the inequities and unfairness Ms Martinez may have witnessed would be eliminated with a single-payor solution – but then she’d have to find a new line of work.

    Absent such a sweeping change of direction – which is a virtual 100% political certainty – more than two-thirds paying under $100 a month for premiums seems like a significant success, albeit partially at the expense of others now paying more than they did previously. This is the fault of a private insurance marketplace – it’s how private insurance works. The only way to avoid that outcome and still expand coverage would be a tax-based single-payor system. Without that, expect there to be more winners and losers to come.

  2. Bett martinez Says:

    As a current insurance broker, former health policy analyst, I awaited ACA launch with a mixture of eager expectation – no rejection for pre-existing conditions! subsidies for low wage earner! – and trepidation – change is difficult.

    However, once I held in hand new premiums for many hundreds of individual clients, and saw that 90% had rate increases, 50% over $100 mo, it felt more factual than anecdotal. In CA, we also saw “blacked out zipcodes”, many of which had only one insurance carrier. So much for lower premiums m increased competition.

    I’ve seen drug studies w/ fewer participants, bur rarely do they get dissed as anecdotal.
    Best,
    Bett Martinez

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