Are Health Insurance Premiums Going Up or Down for 2021?

Cutting through the noise about health insurance premium changes

Map of the US in shades of grey
Individual market health insurance premiums are increasing in some areas for 2021, and decreasing in other areas.

Jesper Klausen/Science Photo Library/Getty Images 

If you've been paying attention to headlines about health insurance this fall, you've probably seen plenty indicating that premiums are going up, while others say that premiums are going down for 2021. So, what's really going on?

As it turns out, both sets of the headlines are true—in some areas, premiums are going down, while in other areas, they're increasing. And across the 36 states that use HealthCare.gov, average benchmark plan premiums (on which premium subsidies are based) are decreasing. Let's sort through all the noise and figure out what's really happening to your health insurance premiums.

Rate Changes for the Individual Market

For starters, the vast majority of the headlines you're seeing are for major medical health insurance that people buy in the individual/family market (ie, non-group plans), and that are compliant with the Affordable Care Act (ACA). That can be in the health insurance exchange or outside the exchange (i.e., purchased directly from the health insurance company), but it does not include coverage that people get from an employer, nor does it include Medicare, Medicaid, or the Children's Health Insurance Program.

There are only about 12 million people enrolled in ACA-compliant individual market health insurance in the United States. That amounts to less than 4% of the U.S. population. So, although the vast majority of Americans get their health insurance either from an employer or from a government-run program (Medicare, Medicaid, CHIP, the VA, etc.), the headlines that you're seeing don't tend to have anything to do with those plans. Instead, the headlines tend to refer to the individual market.

That's the market that was most in need of reform before the Affordable Care Act, and it's the market segment that was most heavily affected by the ACA (the small group health insurance market also saw some significant reforms, but not as much as the individual market). Not surprisingly, it's also been the market that has seen the most change over the last several years and has been in the spotlight each year when rate changes are announced.

(Note that while all new individual major medical plans are ACA-compliant, there are some people who are still enrolled in grandmothered and grandfathered individual market plans, and there are also other types of non-group coverage, such as short-term health plans, Farm Bureau plans in some states, and health care sharing ministry plans, that are not ACA-compliant—in some cases, are not even considered insurance—and are not the plans we're talking about when we look at overall average rate changes for the individual market.)

Overall vs. Benchmark Premiums

When we look at overall average premiums across the entire individual market nationwide, they're increasing slightly for 2021. According to a KFF analysis, the median rate change is just over 1%, with half of all the average rate changes falling between a 3.5% decrease and a 4.6% increase.

2021 is the third consecutive year with modest overall rate changes. In 2019, overall average premiums increased by less than 3%, and in 2020, they decreased slightly. The individual market was much less stable before that, with average rate increases of about 25% in 2017, and about 30% in 2018. But the rates have largely leveled off since then, and in many states, the 2021 rates are quite similar to 2018 rates.

Although there's a slight average rate increase nationwide for 2021, the rate changes vary considerably from one area to another. In Maine, for example, average individual market premiums are decreasing by about 13%. But in Indiana, they're increasing by an average of more than 10%. And that's statewide—if we just look at specific insurance companies or specific health plans, the range of premium changes is even more significant.

All of those calculations are based on how rates would change if everyone keeps their current policy in 2021, which is unlikely—a significant number of enrollees shop around during open enrollment each year and switch plans if there's a better option available, and new insurers have joined the markets in many states, adding additional options for 2021 coverage. But without plan changes, we'll see a slight increase in nationwide average premiums for 2021.

So why are we hearing that average rates are decreasing? This is twofold: First, in some states, overall average premiums are decreasing. And when we look only at average benchmark premiums (as opposed to overall average premiums) in states that use HealthCare.gov, there's an overall average decrease of about 2% for 2021. The benchmark plan is defined as the second-lowest-cost silver plan in each area (it's also a term used to describe the basic set of benefits that must be covered in each area, but that's not the definition we're talking about here).

In October 2020, the federal government published data showing how average benchmark premiums in 36 states would be changing for 2021: They're decreasing by an average of 2%, although there's wide variation across the states. This is the third year in a row with an average decrease in benchmark premiums across the states that use HealthCare.gov.

The data did not include information about benchmark plan changes for DC and the 14 states that run their own exchange platforms, which account for nearly a third of all exchange enrollment in the country (for 2021, this includes New Jersey and Pennsylvania, both of which used HealthCare.gov in prior years but have established their own state-run exchange platforms as of the fall of 2020).

What This Means for 2021 Premiums

Benchmark premiums are important because premium subsidies are based on the cost of the benchmark plan. The idea is that the cost of the benchmark plan minus the premium subsidy results in a net premium that's considered affordable based on the enrollee's income

When the cost of the benchmark plan in a given area increases, premium subsidies in that area have to increase as well in order to keep the net premiums at an affordable level. But when the cost of the benchmark plan decreases, premium subsidies decrease too, since the subsidy doesn't have to be as large in order to get the benchmark plan's net premium down to an affordable level.

The specific subsidy amount for each enrollee depends on the cost of the plan they select and the cost of the benchmark plan in that area (benchmark plans vary considerably within each state). But in general, premium subsidies decrease when the benchmark plan premium decreases.

Average benchmark premiums declined in 2019 and again in 2020, and average premium subsidy amounts also declined: For people with effectuated coverage as of early 2019, the average subsidy amount was about $512/month, and it had dropped to $492/month as of 2020.

Given the slight decrease in average benchmark premiums across 36 states for 2021, we can expect to see another decrease in average subsidy amounts. But this will also depend on average incomes and the average age of enrollees: If overall average incomes are lower, the average subsidy amount will be higher, because the subsidies are designed so that people with lower incomes receive larger subsidies. And the average age of exchange enrollees is older, the average subsidy will also be higher, since premiums are higher for older enrollees and they thus need larger premium subsidies to make their coverage affordable.

How Will Your Premium Change for 2021?

The cost of your specific health insurance policy could go up or it could go down, depending on whether you receive a premium subsidy (most exchange enrollees do, but everyone who enrolls outside the exchange pays full price), and how much your plan's price is changing. And depending on where you live, you might have some all-new options for 2021 and choose to switch to one of those plans instead of renewing your existing coverage.

If you're subsidy-eligible and your plan's price is increasing slightly, but the premium subsidy in your area is decreasing slightly, you could end up with a higher net premium in 2021 than you had in 2020. And we know that across all plans, there's a slight overall average rate increase for 2021, so this will be applicable for a lot of people.

On the other hand, if you're not eligible for a subsidy, you'll just need to look at how much your plan's regular premium is changing—it varies a lot from one area to another and from one insurer to another.

There's no single answer that applies to everyone. And sometimes changes that seem uniformly good can actually result in higher premiums for some enrollees. For example, additional insurers joining the insurance market in a particular area generally seems like a good thing for enrollees—who wouldn't want increased competion, right? But if the new insurer has lower prices than the existing insurers and undercuts the current benchmark plan, it will take over the benchmark spot. Since it has a lower premium, that will translate to smaller premium subsidies for everyone in that area, regardless of whether they switch to the new insurer or not. If they opt to keep their existing coverage, their net (after-subsidy) premium might increase, even if their own plan's rate is staying fairly stable.

For 2021, there are insurers joining the marketplaces in about half the states, and many other states where existing insurers are expanding their coverage areas. The additional plan options do bring added competition and choice. But they also make it particularly important for enrollees to double check their options during open enrollment.

Another example is reinsurance. More than a dozen states have implemented reinsurance programs, which help to reduce overall average premiums in the individual insurance market. That seems like it would be obviously beneficial, but again, it depends on how it affects the cost of the benchmark plan. When reinsurance drives down premiums, the people who don't get premium subsidies (and thus have to pay full-price for their coverage) will obviously benefit from lower premiums. But for people who do get subsidies, the subsidies decrease along with the overall rates. And in some cases, they decrease by more than the cost of the average premiums, resulting in higher net premiums for people who get premium subsidies. This happened for many enrollees in Colorado in 2020, for example, due to the state's new—and quite successful—reinsurance program.

A Word From Verywell

Although overall average benchmark premiums in most states are decreasing slightly for 2021, that just means that premium subsidies will be slightly smaller in 2021. It doesn't mean that your premiums will be smaller in 2021. Overall average premiums are increasing slightly, and coupled with the slightly lower benchmark premiums (and thus smaller subsidies), some enrollees could end up paying more for their coverage in 2021.

At the end of the day, it's particularly important for people with individual market health insurance to shop carefully during open enrollment this fall (November 1 to December 15 in most states, although DC and ten states have extended open enrollment periods).

There are new insurers joining the exchanges in many states, and the slight decrease in benchmark premiums means that your after-subsidy premium might be higher than it was in 2021 if you just keep your current plan. Switching to a lower-cost plan might be an option for many enrollees, although there's not a one-size-fits-all answer there either, since it will depend on the provider network, overall benefits, and covered drug lists for the alternative plans you're considering.

If you need help, you can find a broker or navigator who is certified by the exchange. But in nearly every state, you'll need to have your plan selection completed by December 15. There are several states where open enrollment continues past that date (although in most of them, you do still need to enroll by December 15 in order to have coverage effective January 1, 2021), but they are the exception to the rule.

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Article Sources
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