Are Health Insurance Premiums Going Up or Down for 2019?

Cutting through the noise about health insurance premium changes

If you've been paying attention to headlines about health insurance this year, you've probably seen plenty about premiums going up as a result of various legislative and executive actions. But you're also probably seeing others highlighting the fact that premiums are going down for 2019. So, what's really going on?

As it turns out, both sets of the headlines are true—in some areas, premiums are going down for a variety of reasons. But in most areas, premiums are also going to be higher than they might otherwise have been without various government decisions. 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 health insurance that people buy in the individual market. 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 fewer than 16 million people enrolled in individual market health insurance in the United States. That amounts to less than 5 percent 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.

Overall vs. Benchmark Premiums

When we look at average premiums across the entire individual market nationwide, they're increasing slightly for 2019.

The rates haven't been finalized yet in some states, but the average increase is a little more than 3 percent. That's significantly smaller than the average rate increases for 2017 (about 25 percent) and 2018 (about 30 percent).

Although there's a slight average increase nationwide, the rate changes vary considerably from one area to another. In Maryland, for example, average individual market premiums are decreasing by about 13 percent. But in Washington state, they're increasing by an average of nearly 14 percent.

Those calculations are based on how rates would change if everyone keeps their current policy in 2019, 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. But without plan changes, we're looking at a slight increase in nationwide average premiums for 2019.

So why are we hearing that average rates are decreasing? It turns out that average benchmark premiums (as opposed to overall average premiums) in states that use HealthCare.gov are decreasing slightly for 2019. 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 2018, the federal government published data showing how average benchmark premiums in 39 states would be changing for 2019: They're decreasing by an average of 1.5 percent, although it varies from a decrease of 26 percent in Tennessee to an increase of 20 percent in North Dakota.

The data did not include information about benchmark plan changes for DC and the 11 states that run their own exchange platforms, which account for about a quarter of all exchange enrollment in the country.

What This Means for 2019 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 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.

So we can expect a slight decline in the value of premium subsidies in 2019, on the heels of two consecutive years when average premium subsidy amounts increased significantly. But 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.

If you're subsidy-eligible and your plan's price is increasing slightly, but the premium subsidy in your area is decreasing slightly, you'll end up with a higher net premium in 2019 than you had in 2018. 

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. Tennessee is a good example of this: Two new insurers are joining the exchange for 2019, two existing insurers are expanding their coverage area, and two insurers are lowering their prices by double-digit percentages.

That's all great news. But the average benchmark premium is decreasing by quite a bit more than the average overall premium. That means subsidy amounts will fall by more than the average premium amounts, and people who don't shop carefully during open enrollment could find that their coverage, after their subsidy is applied, is more expensive in 2019 than it was in 2018. 

Factors Causing Rates to Be Higher

Some of the factors that cause rate increases are unrelated to recent government intervention, including things like general increases in the cost of medical care and prescription drugs. But throughout 2018, we've been hearing about how Congress and the Trump Administration were causing premiums to be higher for 2019 than they would otherwise have been. And that's true, despite the fact that overall average premiums are only increasingly slightly. 

Elimination of the Individual Mandate Penalty

There are two main issues at play here. The first is the impending elimination of the ACA's individual mandate penalty. The penalty was repealed as part of the Tax Cuts and Jobs Act, which was enacted in late 2017, although the elimination of the penalty doesn't take effect until January 1, 2019

Before Congress passed the legislation (which is far-reaching; the elimination of the individual mandate penalty is only a tiny portion of it), the nonpartisan Congressional Budget Office projected that eliminating the individual mandate penalty would cause premiums in the individual market to be 10 percent higher throughout much of the next decade, versus what they would have been if the mandate penalty had been left in place.

Sure enough, in the spring and early summer of 2018, when insurers began filing their proposed rates for 2019, the elimination of the individual mandate was almost universally listed as a factor driving up premiums. Even in cases where the insurer had proposed an overall rate decrease, they generally noted that rates would be decreasing even more if the mandate penalty wasn't being eliminated.

DC, New Jersey, and Massachusetts will all have their own individual mandates (with associated penalties) in 2019, which mitigates the effect of the elimination of the federal mandate penalty in those states. Vermont will join them in 2020 and other states might opt to create their own individual mandates in future years.

Expansion of Short-Term Plans and Association Health Plans

The other factor that insurers' rate filings frequently cited as a justification for higher premiums is the Trump Administration's decision to expand access to short-term health insurance plans and association health plans

The Administration's new rules allow short-term policies to last longer and be renewable, and allow self-employed people to purchase coverage under association health plans. In both cases, the idea is that those alternatives have lower premiums (because they don't cover as much and are subject to fewer regulations), and are thus more appealing to healthy people, particularly if they don't qualify for premium subsidies in their state's health insurance exchange.

This has been very controversial. On one hand, people in that situation (i.e., having to pay full price for a health insurance policy in the individual market, which can easily cost 20+ percent of a person's income if they're just a little over the income limit for subsidy eligibility) are desperate for lower-cost alternatives. And if they're healthy, they may very well be willing to take a gamble and settle for a less robust plan that's easier to fit into their budget.

But on the other hand, people who do that may find themselves between a rock and a hard place if they do end up getting seriously injured or ill, as there are numerous drawbacks to the less-regulated plans. In particular, the ACA's essential health benefits don't have to be covered, which means there could be gaping holes in the coverage (things like prescription drugs, maternity care, mental health care, etc. might not be covered at all, depending on the plan).

From an entire population perspective, the individual market risk pool is harmed when healthy people are given a lower-cost alternative. Short-term plans are generally only available to healthy people because they can simply reject applicants based on medical history. Association health plans cannot reject applicants or charge them higher prices based on medical history, but the plans can be designed in a way that they don't really appeal to people with pre-existing conditions.

The expansion of short-term plans and association health plans is expected to draw healthy people out of the ACA-compliant risk pool (uninsured people are also likely to be drawn to these lower-cost alternatives, which is not a bad thing—having some insurance is far better than having none at all).

Factors Causing Rates to Decline

Although the elimination of the individual mandate penalty and the expansion of short-term plans and association health plans are serving to drive premiums higher than they would otherwise have been in 2019, there are other factors, particularly when we look at rates on a state-by-state basis, that are causing rates to be lower than they would otherwise have been.

Rates Were Higher Than They Needed to Be in 2018

One overarching theme that applies in numerous states is the fact that many insurers overshot when they set premiums for 2018. Keep in mind that the situation in the spring/early summer of 2017 (when rates for 2018 were being set) was particularly uncertain.

In 2017

  • Congress was in the middle of trying to repeal the ACA, and although that didn't come to pass, it wasn't until the fall that it was clear that the ACA would not be repealed in 2017.
  • The Trump Administration was repeatedly threatening to cut off funding for cost-sharing reductions, and that issue wasn't resolved until October, when the funding was officially eliminated (insurers in most states have added the cost of CSR to silver plan premiums, which although it drives up average premiums, also results in larger premium subsidies and more affordable after-subsidy premiums for many enrollees).
  • The status of the individual mandate was very much in question. Even if the ACA repeal bills weren't successful, insurers didn't know if the IRS would continue to enforce the mandate. And even if they did, there was uncertainty over whether the public would perceive that the mandate wasn't being enforced, which could lead to fewer healthy people purchasing coverage.

Given the tremendous uncertainty, insurers proposed substantial rate increases for 2018. And although regulators in some states rejected some of the increases, the approved average rate increase for 2018 was about 30 percent across the whole individual market. And that was on top of the 25 percent average rate increases we saw for 2017. The result was particularly high premiums for people who didn't qualify for premium subsidies, and particularly large premium subsidies for those who did.

So although off-exchange enrollment (where subsidies aren't available) dropped considerably, on-exchange enrollment only dipped slightly (11.8 million, down from 12.2 million in 2017), even though open enrollment was half as long for 2018 coverage as it had been for prior years.

Insurer profitability in the individual market started to become much more widespread in 2017 and 2018. And although profitability is obviously the desired goal for insurance companies, they're not allowed to be too profitable. If their total administrative costs (including all overhead expenses plus profits) exceed 20 percent of the premiums they collect, they have to send rebate checks to their members. This is a provision in the ACA that ensures that health plans spend the majority of our premiums on medical costs, rather than administrative costs and profits.

So it does not benefit insurers to just raise rates and pocket the additional premiums. And when it became clear that the premiums for 2018 had been set too high in many cases, the insurers proposed rate decreases for 2019 (or, in some cases, would have proposed rate decreases if not for the factors described above that are pushing premiums higher than they would otherwise have been for 2019).

State-Based Reinsurance Programs

Several states have established, or will soon establish, reinsurance programs to stabilize their individual health insurance markets. The idea is that the reinsurance program picks up a portion of high-cost claims, leaving insurers with less overall risk and correspondingly lower premiums.

Three states—Alaska, Oregon, and Minnesota—already have reinsurance programs. Wisconsin, Maine, Maryland, and New Jersey all received federal approval in 2018 to establish reinsurance programs starting in 2019.

Not coincidentally, Alaska, Minnesota, Wisconsin, Maryland, and New Jersey will all see their overall average premiums decrease in 2019. In Oregon and Maine, average rates will be higher in 2019, but the rate increases would have been much more significant without the reinsurance programs.

State Regulations to Limit Short-Term Plans and/or Association Health Plans

Although the expansion of short-term plans is a factor that's driving average individual market premiums higher for 2019, the new federal rules give states the option to impose stricter regulations if they choose to do so.

Quite a few states already had their own rules for short-term plans, which continue to apply even now that the federal rules have been relaxed. And several other states have worked to impose tighter regulations on short-term plans in 2018 (here's a list of current state regulations, and you can click on a state on this map to see details about how that state regulates short-term health plans).

Some states have also enacted legislation or regulations to limit the scope of short-term plans (California, for example, enacted legislation that prohibits self-employed people from joining association health plans).

In states where regulations effectively limit the expansion of short-term plans and/or association health plans, the effect of the new federal regulations is muted, which means premiums in the individual market will be lower in 2019 than they would have been if the new federal rules had been allowed to take effect.

Numerous Other Factors

As you can see, there are numerous factors that are affecting individual market health insurance premiums for 2019. Some of them are pushing the rates higher, while others are pushing rates lower than they would otherwise have been.

In many states, you have factors on both sides working simultaneously. The overall average rate change is a slight increase for 2019, but there's significant state-by-state variation.

And although average benchmark premiums are decreasing slightly, that just means that premium subsidies will be slightly smaller in 2019. It doesn't mean that your premiums will be smaller in 2019.

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 six 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 2018 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 who is certified by the exchange or reach out to a Navigator in your area. But in nearly every state, you'll need to have your plan selection completed by December 15.

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