What You Should Know About Benchmark Premium Increases

Benchmark premium increases: Here's what you need to know.

Average benchmark premiums are increasing by 7.5%
Average benchmark premiums are increasing by 7.5%. But that doesn't tell you anything about your own plan. Isabel Pavia/Getty Images

Last week, HHS released an overview of premiums for plans available through Healthcare.gov in 2016. One of the take-away points was that benchmark premiums are increasing by an average of 7.5 percent across the 37 states that used Healthcare.gov in 2015 (with the addition of Hawaii, 38 states are using the Healthcare.gov enrollment platform during the 2016 open enrollment period).

But what exactly does that mean? 

The benchmark plan is the second-lowest-cost Silver plan in a given area. So if you go on Healthcare.gov (or your state-run exchange site if you're in one of the 13 states that operate their own exchanges) and get quotes, the second-lowest-cost Silver plan that pulls up is the benchmark plan in your area. The reason it's important is because subsidy amounts are based on keeping the net cost of the benchmark plan at a level deemed affordable under the ACA.

The report that HHS published last week includes average benchmark plan premium changes in 37 states. But within a state, there are different plans available in different areas. And even if the plan is the same in different areas, the price could be different, because location is one of the factors that can be used to set premiums. 

The HHS report included statewide averages for benchmark premium changes, but it also included average benchmark premium changes in 30 major metropolitan areas. That data helps to illustrate how benchmark premiums vary within a state. For example, across the whole state of Georgia, the average benchmark plan premium is increasing by 6.1% in 2016. But in the Atlanta metropolitan area, the average benchmark plan will be just 4.7% more expensive in 2016.

Benchmark plan can be different each year

Another key factor in understanding the benchmark premium changes is the fact that the benchmark can be an entirely different plan from one year to the next. In 2015, the second-lowest-cost Silver plan in your area might be a $5,000 deductible plan from Carrier X. But if Carrier X raises rates more than Carrier Y, the benchmark plan in 2016 - in the same area - might be a $4,800 deductible plan from Carrier Y. When HHS says that the average benchmark plan is increasing in price by 7.5% in 2016, they just mean the cost of the plan that occupies the second-lowest-cost Silver spot in the exchange. It won't necessarily reflect how much the premium changes for the plan that holds the benchmark spot in 2015. In the scenario above, the rate change would involve comparing Carrier X's price in 2015 with Carrier Y's price in 2016.

So the 7.5% average increase in benchmark premiums doesn't tell you anything in terms of how much your current plan's premiums will change. But it does give an indication of how your premium subsidy might change next year.

Again, it's just averages; the specifics vary from one area to another. But if the second-lowest-cost Silver plan in your area is going to be more expensive in 2016 than it was in 2015, your subsidy is going to be higher than it was this year too. And the reverse is also true. In areas where the benchmark premium will be lower in 2016, subsidies will also be lower, since not as much subsidy is needed to get the new cost of the benchmark plan down to an affordable level (Indiana, Maine, Mississippi, and Ohio will all have lower statewide average benchmark premiums in 2016 than they had in 2015). 

Take the time to shop around

There's no way to know how much your plan, your subsidy, and the other plans in your area will be until you compare available options during open enrollment. Letting your plan auto-renew could result in a surprise when you get your January invoice; even if you know how much your plan's premium is changing, a changing subsidy could also result in a higher or lower premium than you're expecting. And since carriers are offering different plans in various areas next year, you may find that a new plan will provide a better value than keeping the one you have now. There's no one-size-fits-all when it's time to renew your health insurance - shop around!

Nationwide, rates in the individual market (across all metal levels and including off-exchange plans) are increasing by an average of 12% to 14% in 2016, assuming nobody shops around and switches to a new plan. But if consumers shop around, they could end up with rate changes considerably lower than that.

November to January open enrollment - individual market only

The open enrollment that began on November 1 and continues until January 31 only applies to the individual health insurance market. If you get your health insurance from your employer, your open enrollment window is different. Medicare has its own set of open enrollment windows and Medicaid/CHIP enrollment runs year-round. The benchmark premium changes described in the HHS report only apply to people who buy individual health insurance in the ACA-created exchanges in the 37 states that use Healthcare.gov (although individual plans sold outside the exchanges in those states will see rate changes that are similar to the on-exchange rate changes).

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