Your Obamacare Premiums Might Not Fall, But Your Subsidy Probably Will

Font Size:

Kaiser Family Foundation updated a study Tuesday finding that the cost of the one plan Obamacare subsidies are based on are is falling ever so slightly in some cities — meaning subsidies are shrinking while other premiums aren’t.

The report finds a less substantial decrease in the cost of one specific plan on Obamacare exchanges in just 48 cities than Kaiser had predicted earlier this fall, a 0.2 percent decrease instead of a 0.8 percent fall. But the price of just one plan is falling: while that’s great for people who want to purchase that one plan, it’s not necessarily good news for the neediest Obamacare customers. (RELATED: Report: Obamacare Subsidies Could Fall For Low-Income Customers Seeking Cheapest Plans)

The benchmark plan is the second-lowest cost silver plan available on the Obamacare exchanges. It’s how subsidies get calculated — the federal government bases the amount of subsidies it doles out partially on the cost of the insurance available. Because silver-rated plans are the most popular, more insurers are offering silver plans in Obamacare’s second year — after all, many insurers shied away from the exchanges until they knew how it was going to work.

The insurers who attracted the most customers during the first year are generally hiking their rates; new insurers are generally joining and trying to entice sign-ups to switch over with lower rates. And nothing’s stopping the lowest-cost insurers from doing the same next year, hiking their prices after they attract some customers.

But the drop in benchmark plans sparks more than just administrative hassles: it lowers subsidies. That’s only beneficial if the cost of premiums is dropping across the board — and they’re not.

The least expensive bronze plan, the cheapest offerings on the exchanges, are rising by 2.7 percent in the 48 cities, according to Kaiser. The plans are popular amongst young people, who are vital for the health of the exchanges — and anyone else who can’t afford the higher premiums of a silver plan. The effect will be pushing people towards the one lowest-cost silver plan — which will undoubtedly change next year as well.

If the benchmark plan is the only one to change, that makes things more expensive for anyone receiving subsidies who doesn’t want that one plan. According to Kaiser, the average rate hike for a 40 year-old on the least expensive bronze plan is 2.7 percent when subsidies are disregarded. But when last year’s larger subsidies and this year’s lower ones are considered, the effective rate hike is 3.1 percent instead.

And that’s just the least expensive option available on the exchanges — it says nothing about the increase in a customer’s chosen health plan. Kaiser’s only run the numbers on the least expensive bronze and silver plans in big cities — the plans that customers bought this year have larger rate hikes and those outside of the cities may have different experiences altogether.

Obamacare customers will be best served by switching plans — they’ll see much higher increases if they stay in a given exchange plan year to year, according to a study from Avalere Health. The new normal for Obamacare customers, apparently, will be that those who want to keep their costs down will only be able to keep their health care plan for a year.

Follow Sarah on Twitter