Dr. Eboni Green
April 22, 2021
In mid-October of 2020, CMS put out a press release about a downward trend in healthcare insurance premiums. The announcement triggered a lot of noise in the media. Everyone had an opinion on how the rates would change in 2021. Each seemed to make sense and was well-supported.
Many people are still asking: Which opinions are accurate and why?
The answer is simple but not so easy to dissect. Contrary to the CMS announcement, health insurance premiums are generally on an upward trend.
Why do we appear to be contradicting the CMS position?
Patients often enquire from caregivers on matters concerning spending on healthcare services. We respond that one should research widely and have an excellent understanding of their financial position. Healthcare costs are on a general upward curve, and health insurance premiums always follow the costs.
Nevertheless, the position of CMS is also correct. What do we make of this? This article will help you sort through the noise and understand what is happening.
For starters, if you are reading this and you are employed, do not let headlines sway or scare you. Your insurance provider will give rate updates through your employer. Some employers go beyond paying the entire premium and boost their team’s caregiving skills. In turn, the employees become more productive.
If you are under a government-sponsored program (like Medicare, Medicaid, or the Children’s Health Insurance Program), do not worry about the headlines. The government or insurer will let you know how the premiums will be changing.
So, who can speculate? People enrolled in ACA-compliant individual market health insurance schemes. This segment accounts for only 6% of the entire health insurance market. For this segment, the premiums on benchmark plans are a critical factor to consider.
Benchmark premiums are rates applicable to the benchmark plan. It is the second-lowest-cost silver plan in each area that uses Healthcare.gov.
Benchmark premiums are crucial because premium subsidies are pegged on the cost of the benchmark plan. When the rate goes up in a given area, premium subsidies in that area will also increase to counter the rise and keep the net premiums affordable.
Note that more than 8 in 10 (86 percent) of all the people who purchase individual plans do it via the exchanges. Thus, they qualify for premium subsidies. Subsidies significantly influence how much people pay for health insurance premiums. It affects how their post-subsidy rate changes from one year to the next.
From a general perspective, rates for individual plans are on an upward trend – albeit modestly. According to an analysis by the Kaiser Family Foundation, in 2019, average health insurance premiums went up by less than 3%. In 2020, there was a slight decrease. Overall, the average was a 3.5% decrease and a 4.6% increase in rates between 2019 and 2020. The net is a slight increase in rates.
The reports of decreasing premiums are based only on average benchmark premiums (not an average of overall premiums). The data used by CMS to conclude that there would be an average 2% drop in premium rates in 2021 applied to the average benchmark plans available via HealthCare.gov. But, the data did not include information about benchmark plan changes for DC and the 14 fully-run state exchanges. Together, these states account for about 30 percent of all exchange enrollment in the country.
The differences in rate changes vary depending on where you are. For instance, in Maine, the average individual health insurance premiums decrease is about 13%. However, in Indiana, the rates are increasing by an average of more than 10%.
Nationally, the average benchmark premiums dropped in 2019 and also in 2020. Consequently, it triggered a reduction in the mean premium subsidy amounts. Since there was a slight reduction in the average benchmark premiums in 36 states for 2021, it is fair to expect a further reduction in benchmark rates and consequently in the subsidy amounts. However, this doesn’t mean lower premiums for everyone.
The most significant factor influencing premium rates for individual plans is whether or not you receive premium subsidies. For those who are not subsidy-eligible (which is the case for everyone enrolled in off-exchange), the rate changes are straightforward. Just look at how your insurance provider is changing the premium for your plan next year. It varies with location and provider and is probably on an upward trend.
For those eligible for subsidies, the rising health insurance premiums and rates could mean two things.
There is no single answer that could cut across all markets and all locations. A blanket change, like the one announced by CMS, may seem attractive. But it does not automatically mean that your net premium would be lower. It just means that rates went down for benchmark plans available via HealthCare.gov. Not all states ascribe to this, and it also leaves out off-exchange clients. However, it does indicate that subsidies will change and could translate to higher rates for subsidy-eligible enrollees.
