What Is a Benchmark Plan Under the ACA?

In the years since the Affordable Care Act (ACA) was enacted, the term "benchmark plan" has been used extensively. But it's used to describe two very different aspects of the law's regulations, which can be confusing for consumers. Generally, context will let you determine which definition is being referenced, as long as you understand both types of benchmark plans.

Benchmark plan refers to:

• The second-lowest-cost silver plan in the exchange (marketplace) in each area, in the individual/family insurance market, OR
• The plan that each state uses to define essential health benefits within that state for individual/family and small group plans.

These are two very different concepts, but they both have the same name, which can certainly lead to confusion. This article will explain how each type of benchmark plan works.

The Second-Lowest-Cost Silver Plan in the Exchange

For people who are eligible for the ACA's premium subsidies (premium tax credits), the subsidy amounts are based on keeping the after-subsidy premium of the second-lowest-cost silver plan at a pre-determined percentage of the enrollee's income. That second-lowest-cost plan is called the benchmark plan.

The benchmark plan varies from one area to another, and from one year to the next. That's because the plan's status as the benchmark is determined entirely by its price relative to the other silver plans available in that area.

So within a state, there could be several different benchmark plans if the state has a robust insurance market that varies from one locality to another, or there might be a single plan that holds the benchmark spot throughout the state.

During open enrollment for individual market coverage (November 1 to January 15 in most states), consumers can see what the cost of the benchmark plan will be for the coming year. They will also see what amount—if any—the enrollee will receive in premium subsidies.

It's important to note that there's no standard benchmark plan cost. Instead, the cost of the benchmark plan is specific to each enrollee, depending on their zip code and age (or ages, if multiple family members are included on the application).

The subsidy amount is determined based on how much the benchmark plan would cost for that enrollee, the cost of the actual plan they want to buy, their income, and the associated percentage of their income that they'd be expected to pay for the benchmark plan. (Note that this percentage has been reduced significantly under the American Rescue Plan; the result is larger and more widely available premium subsidies. And this has been extended through 2025 by the Inflation Reduction Act.)

But you don't actually need to know how all of those parts work together, as the exchange does all of the calculations for you. You'll reconcile it on your income tax return, however, so it is useful to understand the basics.

The benchmark plan can be offered by a different insurance company from one year to the next since insurers change their prices each year. The prices are then set for the year, so the benchmark plan in a given area will not change until the next year unless an insurer exits the market mid-year. This is rare, but it does occasionally happen, as we saw with some of the ACA's CO-OPs in 2015 and 2016.

For the following year, however, insurers' rankings on the price scale can shuffle around as some insurers raise their rates more than others, and some reduce their rates from one year to the next. The price of the benchmark plan can also be affected if a new insurer enters the market and takes over the benchmark spot. This has happened in many areas over the last several years, as insurers have joined or rejoined the marketplaces in many states.

But the takeaway point to understand is that your premium subsidy is based on the amount it would cost you to buy the benchmark plan. You can use that subsidy to buy any metal-level plan in the exchange. You don't have to buy the benchmark plan, but your premium subsidy will be the same amount, regardless of which plan you choose. Your after-subsidy premium amount will vary considerably, depending on which plan you choose. And if you purchase a plan that costs less than the amount of your subsidy, you don't get to keep the extra money—you just pay $0 or nearly $0 for your coverage.

For 2023, average benchmark premiums in the 33 states that use HealthCare.gov are 4% higher than the average benchmark premiums were for 2022, after dropping by about 3% the year before. There is considerable variation from one state to another, but the overall average benchmark plan price decreased in 2019, 2020, 2021, and again for 2022, after increasing fairly sharply in 2017 and 2018.

Because premium subsidy amounts are tied to benchmark premiums, that means average premium subsidies are larger for 2023, after dropping slightly in 2022 (for people who are the same age, in the same zip code, and whose income remained the same percentage of the poverty level in both years). But again, there's significant variation from one state to another, both in terms of the actual subsidy amounts as well as how they have changed year-over-year.

These additional premium subsidies continue to be available through the end of 2025, under the terms of the Inflation Reduction Act that was signed into law in 2022.

The additional premium subsidies are due to the temporary elimination of the "subsidy cliff," as well as an across-the-board reduction in the percentage of income that people are expected to pay for the benchmark plan.

State-Based Standards for Essential Health Benefits

The other type of benchmark plan is the reference plan in each state for determining what benefits are covered by individual and small group plans in the state.

All individual/family and small group plans—with effective dates of 2014 or later—must cover the ACA's ten essential health benefits. There is some leeway for pediatric dental/vision coverage, but the other nine essential health benefits have to be integrated into all ACA-compliant individual and small group plans.

And while large group plans do not have to cover the essential health benefits (with the exception of preventive care, which they do have to cover), they cannot impose annual or lifetime dollar limits on any essential health benefits that they do cover.

So it's important to clarify what counts as an essential health benefit. The ACA defined them with deliberately broad strokes, keeping the outline of the ten essential health benefits to bullet points that would fit on half a page. The law also noted that the Department of Health and Human Services (HHS) would be tasked with ensuring that the coverage would be "equal to the scope of benefits provided under a typical employer plan."

From there, the federal government left it up to HHS to sort out the details. HHS, in turn, tasked each state with designating a benchmark plan that would be used as the reference plan for new individual and small group plans in that state.

In 2012, HHS published a list of FAQs about benchmark plans, to help states comply with the process, and additional guidance was published in 2015. States were allowed to pick their benchmark plan from one of the following four options ("largest" is determined based on enrollment):

• One of the three largest small-group plans in the state
• One of the three largest state employee health benefit plans (coverage provided to state employees)
• One of the three largest federal employee health benefit plans (FEHBP options provided to federal employees)
• The largest non-Medicaid HMO plan offered in the state's commercial market.

The idea was that any of those options would offer solid, robust coverage, and would be unlikely to be providing "bare bones" coverage since they were being offered to government workers or were being selected by a significant number of businesses to insure their employees.

For 2014 through 2016, the benchmark plan was a plan that was offered in 2012 (since that's when states were determining their benchmark plans). Some of them had to be supplemented in order to ensure that they covered all of the EHBs since plans were not yet required to be ACA-compliant in 2012. For 2017 through 2019, the benchmark plan was a plan that was offered in 2014.

Starting in 2020, under regulations included in the 2019 Benefit and Payment Parameters, CMS is giving states more flexibility in designing their EHB benchmark plans. A state can choose to adopt another state's benchmark plan as its own or to incorporate different segments of various states' benchmark plans to create their own hybrid benchmark plan. In addition, states can now select or design a new benchmark plan annually, instead of having to continue to use the benchmark plan that was finalized for 2017.

Illinois modified its benchmark plan for 2020 under the new rules, and South Dakota did so for 2021. CMS approved modifications to the benchmark plan for 2022 in Michigan, New Mexico, and Oregon. For 2023, CMS approved modifications to Colorado's benchmark plan. And for 2024, CMS has approved modifications to Vermont's benchmark plan. The other states have thus far opted to continue to use the benchmark plan that they used for 2017-2019.

Almost all of the states use small group plans as their benchmark.

Individual market and small group plans offered in a state must include coverage that is "substantially equal" to the benefits offered by the benchmark plan that the state selected.

There is continuity from one state to another, as the ACA defined the general parameters for EHBs. But the variation in state benchmark plans is why you'll see some services—like infertility treatment—covered differently from state to state, based on either mandates that apply in the state, or differences from one state's benchmark plan to another.

Summary

The ACA includes two different definitions for the term "benchmark plan" and they're used in very different ways. Depending on the context, a benchmark plan can mean:

• The second-lowest-cost silver plan in a given area (used to determine marketplace premium subsidies in that area), OR
• The plan that a state selects to determine how essential health benefits will be covered under individual and small group plans in the state.

A Word From Verywell

When you hear someone talking about a benchmark plan in relation to the ACA, the context will let you determine which type of benchmark plan is being discussed.

Are they talking about the second-lowest-cost silver plan offered in the individual market on the exchange (upon which subsidy amounts are based), or about the plan that a given state has selected to serve as the basic benefits package on which all ACA-compliant individual and small group plans in the state are based? Once you ascertain that, the details above will help you make sense of the discussion.