The number one question we are receiving this open enrollment is "Why is the same plan so much more? Nothing has changed!"
If you are experiencing this, you are not alone. We currently help clients in Florida, Georgia, South Carolina, North Carolina, Virginia, Pennsylvania, New Jersey, Ohio, Michigan, Texas, and New Mexico. This problem(or benefit) isn't specific to geography. Rather, it is a lesson in the complex formulas that are used to determine just what YOU pay for health insurance when it isn't supplied by an employer.
Background Terms
Gross Premium
Each spring insurance companies notify the state and federal agencies that they intend to participate in a list of counties across the country and outline the plans that they would like to offer including benefits and features, as well as the premium for a 21-year-old for each plan. So for 2022, they look at the plans and costs in 2020 in that county to determine how much the per-person cost would need to be to cover the claims. They specifically offer the 21-year-old rate because the state has a formula that converts that 21-year-old rate into the rate for every other age that may purchase this plan. These gross plans premiums change annually based upon the most recent claims data provided each year, and potentially what benefits and features are added or taken away from different plans.
"Discount" - Premium Tax Credits
When you see headlines like "Four in Ten New Consumers Spend $10 or Less Per Month" it is easy to get caught up in the number and forget just how that happens. It isn't that the insurance companies are charging less than $10 per month for health insurance, it is the fact that health insurance premiums are often reduced by a tax credit that is based upon your household income. And, for four in ten consumers, their incomes are low enough to qualify for plans that are under $10 per month. That said, just how much tax credit is there? In plain English, the amount of credits you receive can be calculated by looking at roughly the middle plan premium in your county and bringing that premium down to about 8% of your income.
For Example: if the middle Gross Premium in your county was $900 per month, and you make $50,000 per year, 8% would be $4,000 per year or $333 per month. You would be eligible for a tax credit of $567 per month to bring that plan down to affordable. This is because the middle, or "Benchmark" plan, needs to be brought down to what is affordable to you. You then have a choice to: 1. Pick that plan. 2. Use the $567 as a head start toward a better plan knowing you get the first $567 of premium off. OR 3 Use the $567 to get a cheaper plan at an even cheaper price.
Net Premium
Using the example in the previous paragraph, in order to get a $10 plan, as referenced above, they would have picked a plan that had a gross premium of, say $577, but after you took off the credit, they pay $10 per month.
So why the price increase?
Once you've understood the underlying numbers that get us to the net premium, you can see that there are two potential culprits: 1. The gross premium went up 2. The tax credits went down. Or, more likely, a bit of both.
Gross Premium Went Up
Since the gross premium is directly tied to claims history in your county, any major fluctuation in how we use the health system can result in a fluctuation of those gross premiums. In this case, for 2021 plan premiums(the plans that were enrolled in during the fall of 2020), the gross premiums were actually based upon claims from August 2019 - July 2020. From March to July much of the world was shut down, claims dropped and rates followed suit. As we saw the world start "back to normal" initiatives and vaccine roll-outs it is clear that the breakdown of the most recent claims reflects spending that was deferred(hip replacements and other surgeries that can be delayed with pain management in the interim).
Tax Credits Went Down
While gross premium changes are likely happening, this is less of the culprit than the change in tax credits that we are seeing. In order to explain, we need to unpack the calculation above a bit further.
When we mentioned the $900 middle plan above, we made no clarification about what benefits and features need to be met to be qualified as the benchmark. That is because, the requirement is that the second cheapest silver plan is the Benchmark plan for the county. Beyond which slot it sits in(second from cheapest) and that it is a silver plan. Beyond that, it could have high copays, low copays, high deductible, low deductible, a narrow network or a wide network. The justification to congress is that the plan determines the credit, but doesn't limit your choice to pick another option.
Here is the issue. If that middle plan for the upcoming year is now only $700 because it has fewer features and benefits...then the consumer's tax credit goes down to $367 per month in order to get the $700 down to $333. While yes, you aren't required to take that plan, what that means is if you picked the $577 plan, then a reduction of $367 means your monthly premium for the next year is $210.
This also assumes no changes to your income, household size, or address. So, no changes but because of a calculation change you have to pay an extra $200? The long and short is yes.
What can be done?
Legislatively, make your increased cost known. Share with your senators both at the state and local level. You can find your federal legislator here: https://www.senate.gov/senators/senators-contact.htm and for your state, a quick search for "STATE find my senator" where you plug in your STATE this will give you the direct link to your given State legislators.
Personally, work with your broker. For two reasons. In our case, we sit on several government workgroups and trade group committees to amplify your voice. And, having a broker that understands the dynamics of your given region ensures you don't have to do it alone. Additionally, when new plans are added that drop the available tax credits, they can help identify strategies to cut costs, and explain what potential features are missing from these newer/cheaper plans.