Saturday, September 12, 2015

Kaiser tracks modest premium increases for benchmark plans -- which means what to whom?

The Kaiser Family Foundation has updated an analysis of 2016 premium changes in 12 states and the District of Columbia, the only states (and, um, District) where complete information was available. Rather than focus on average rate increases across all plans, Kaiser focuses on the benchmark second-cheapest silver and cheapest silver plans This is useful in a number of ways, outlined below. Kaiser spotlights the largest city in each state.

The headline is a quite modest average increase in the benchmark plan -- 3.1% -- and a somewhat larger spike in the average cheapest silver plan in each city, 4.2%. The average covers a wide range of variation, from a 22.8% benchmark hike in Portland, OR to a 10.1% drop in Seattle, WA.

Prices changes in the ACA marketplace (including the off-exchange nongroup market) affect different constituencies is different ways -- as do different measures of price changes. I've outlined a few of the permutations below. Point #3 is most interesting, in my view (bury the lead, squawk squawk, bury the lead...).

First, here's Kaiser's flagship chart:



Some observations:

1. As far as the federal Treasury is concerned, changes in the benchmark are almost all that matters, since subsidies are keyed to the benchmark: buyers with the same household income nationwide pay the same price for the benchmark plan in their region, regardless of how much the remainder costs the government.  In some instances, a cheap bronze plans may cost less than the buyer's subsidy -- especially for older buyers, since their base (unsubsidized) premiums are higher. In such cases the customer pays nothing, and the Treasury also gets a windfall.

2. For subsidized buyers, who account for about half of all individual market customers on- and off-exchange, base prices don't matter. They will pay the same price for the benchmark plan, regardless of whether the price of that plan (or the region's new benchmark plan) has risen 30% or dropped 30%. What can matter to subsidized buyers is the spread between the benchmark plan and other viable options. Most notably, if the cheapest silver plan in the buyer's region is much cheaper* than the (second-cheapest) benchmark, that creates an opportunity for buyers with incomes under 250% FPL (that is, three quarters of subsidized buyers in 2015) to access Cost Sharing Reduction subsidies at a discount.** CSR is available only with silver plans. Conversely, a small spread between the benchmark and more expensive plans creates opportunities to trade up -- say, to a gold plan.

3. While Kaiser focuses on benchmark and cheapest-silver plans, many published measures of rate changes report "weighted averages." These take the average increase for each insurer across all its plans, then weight the insurers according to market share. This measure is revealing in its way, but it doesn't reflect the effects of the high volatility in the pricing of marketplace plans so far. In many cases, an insurer who priced very low in 2014 adjusted way up in 2015 and was replaced in the pole positions -- benchmark and second-cheapest silver. Market share followed suit. Consequently, what we really in order to track what individuals and the government are actually spending is retroactive weighted averages -- weighted at the end of open season to reflect what people actually bought. Another useful measure would be median prices paid by individuals and the Treasury for silver plans.

4. This sample is hardly representative of the whole country as Kaiser acknowledges. It does include the nation's two largest cities, but just 4 of the 20 largest. All but two of the included markets accepted the ACA Medicaid expansion, whereas a bit more than half of private plan buyers in ACA marketplaces were in nonexpansion states. In those 22 states (as of end of open season 2015, now down to 20), marketplace customers on average were poorer and probably sicker, both because the states' median household incomes are lower and because eligibility for subsidized private plans begins at a lower threshold in nonexpansion states -- 100% of the Federal Poverty Level (FPL), vs. 138% FPL in expansion states.  According to Charles Gaba's tracking of reported state rate increases, the 13 nonexpansion states (through 2015) that have reported rates do show a higher average rate increase (19%) than the average for all reporting states (12%).

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* The larger average increase in the cheapest silver plan than in the benchmark tracked by Kaiser is in this regard modestly bad news for buyers.

** Some California pricing regions provide a good example of opportunities for "CSR arbitrage" (as detailed in this post). Nationwide, a single person earning 200% FPL ($23,540 for 2016 plan buyers) will pay $124 per month for the benchmark silver plan, for which CSR will boost the actuarial value to 87%, from a baseline of 70% for silver unenhanced by CSR. In one California region (13), a buyer can get the cheapest silver plan, with that 87% AV, for just $55 per month. In several regions, the cheapest silver will be under $100 for a buyer at this income level.


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