What Is a Benchmark Plan Under the ACA?

"Benchmark Plan" Has Two Different Meanings 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 in each area, in the individual insurance market, OR
  • The plan that each state uses to define essential health benefits within that state for individual and small group plans.

These are two very different concepts, but they both have the same name, which can certainly lead to confusion. Let's take a look at how each type of benchmark plan works.

Calculator with coins and medicine
Towfiqu Photography / Getty Images

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 since its 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 if the state has a single insurer or multiple insurers with consistent pricing across the state.

During open enrollment for individual market coverage (November 1 to December 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, based on how much the benchmark plan would cost for that enrollee, the cost of the actual plan they want to buy, and their income (and the associated percentage of their income that they'd be expected to pay for the benchmark plan—the exchange does all of the calculations for you).

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). But for the following year, 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.

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).

For 2020, average benchmark premiums in the 38 states that use HealthCare.gov are 4% lower than the average benchmark premiums were for 2019. There is considerable variation from one state to another, but the overall average benchmark plan price decreased from 2019 to 2020. Because premium subsidy amounts are tied to benchmark premiums, that means average premium subsidies are smaller for 2020 than they were in 2019 (again, with significant variation from one state to another, both in terms of the actual subsidy amounts as well as how they changed from 2019 to 2020).

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 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, they cannot impose dollar limits (annual or lifetime) 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 is 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 will do so for 2021. 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.

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, 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.

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Article Sources
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  1. Norris, Louise. healthinsurance.org. Is the IRS changing how much I'll have to pay for my health insurance next year? August 14, 2019.

  2. Centers for Medicare and Medicaid Services, Newsroom. Premiums for HealthCare.gov Plans are down 4 percent but remain unaffordable to non-subsidized consumers. October 22, 2019.

  3. Centers for Medicare and Medicaid Services. Center for Consumer Information and Insurance Oversight. Plan Year 2020 Qualified Health Plan Choice and Premiums in HealthCare.gov States. October 22, 2019.

  4. Federal Register. Department of Health and Human Services. Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2019. April 17, 2018.

  5. Centers for Medicare and Medicaid Services. Center for Consumer Information and Insurance Oversight. Information on Essential Health Benefits (EHB) Benchmark Plans.

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