Some sidelights on Covered California's modest rate increases for 2016

Covered California, the state's ACA health insurance exchange, is boasting today with some justice that the state held 2016 rates down to an average weighted increase of 4%. Other talking points: the average (unweighted) increase of the cheapest silver plan in each region went up just 1.5%, and the average consumer can save 4.5% if she switches to the cheapest plan in the same metal tier.

That last point is somewhat...selective: the apples-to-apples question is what will happen to current holders of the cheapest plan in each metal tier if they switch to 2016's cheapest plan.  On the other hand...there are two other hands.

First, the talking point about switching to the cheapest plan in one's metal level has some extra validity in California, where benefits for all plans in each metal tier are standardized. In other words, the only substantial variable other than price is network quality. Hence, price shopping -- balancing premium versus benefits -- is likely to be less fraught and easier to get right in California than in most states.

Second, it's good news that the cheapest silver plan in each region went up an average of just 1.5%-- but the import of that factoid depends in part on a second data point. That would be the average increase for the second cheapest silver plan in each region, which is the benchmark according to which premium subsidies are set. That is, a buyer's premium is calculated to leave him paying a fixed percentage of his income for the second cheapest silver plan available to him. If the benchmark silver plan goes up more than the cheapest silver plan, that's good for the buyer: it increases the affordability of silver-level coverage.  Covered California's full rate report shows that the benchmark plans went up an average of 1.8%, very modestly (on average) increasing the spread and so the affordability of the cheapest silver plan. It also shows that the cheapest bronze plan went up an average of 3.3% -- making the cheapest silver relatively (albeit slightly) more attractive.

If you like your ACA plan, you very likely won't be renewing anyway

Sam Baker and  Jonathan Cohn have both spotlighted a Milliman briefing paper warning of an important potential glitch looming as the ACA's second Open Season approaches. It's this: while the government is encouraging current customers to renew their current plans via auto-enrollment, many customers may see significant price spikes if the plan they selected last year loses its status as a "benchmark" plan.

Subsidies are keyed to the second cheapest silver plan in each market, deemed the benchmark; subsidized customers who buy a plan more expensive than the benchmark have to pay the whole difference. Thus, if the ACA affordability formula decrees that you should pay $30 per month for a benchmark plan with a base premium of $300, and that plan's premium spikes to $350 and it cedes its benchmark status, you'll now be on the hook for $80 per month rather than $30 if you stick with it. To stay at roughly the $30 level, you'll have to switch to one of the two cheapest silver plans on offer this year. (Additionally, if the benchmark plan price goes up, customers' advanced premiums may also go up if they re-apply rather than auto-enroll.)

I wouldn't dream of downplaying this very important potential glitch. But I think it's worth noting an often-unnoticed market factor that will mitigate its impact somewhat: there's tremendous churn in the individual market, and it's likely that half or more of those who enrolled in private plans in 2014 will be looking to renew. Many will have found jobs that offer insurance; some will become eligible for Medicaid; some will marry or move and need to select a new plan in any case. In November 2013, healthcare scholars Rick Curtis and John Graves estimated (with some caveats) that just 42 percent of Americans eligible for subsidized exchange coverage at end of 2014 (i.e., the upcoming open enrollment season) were eligible in the prior year. That doesn't quite tell us what percentage of those currently enrolled in subsidized exchange plans will not be seeking coverage for 2015, but it gives an idea of the degree of turnover.