In 2009, the Congressional Budget Office (CBO) estimated that the monthly premium for exchange coverage would average $433 nationwide in 2016. But in nine states that have released premium information for their 2014 exchange plans, the highest monthly premium is $413, according to a new analysis from Avalere Health, an independent consulting firm. The lowest is $205.
While the comparison isn’t perfect, those numbers are good news for consumers and advocates of the Affordable Care Act (ACA), says Caroline Pearson, who tracks health reform implementation at Avalere. It’s also good news for the federal government, which will provide subsidies to people with incomes below 400 percent of the federal poverty level to purchase health coverage on the exchanges. A lower average premium means fewer federal dollars spent on subsidies.
“The exchanges are meant to drive competition and make sure the prices are not astronomical,” Pearson says, “and it seems to be working at this point.”
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The CBO did not release estimates for 2014 premiums, so Avalere was forced to compare the recently released 2014 prices with the agency’s 2016 estimates. But there’s reason to believe that prices will be even lower in 2016. Policymakers and independent observers have always assumed that uninsured people who are older and sicker -- and therefore cost more -- would be the first to sign up for coverage on the exchanges when they open this October. But in later years, it was assumed that more young and healthy people would enroll in the exchanges, as the ACA became better understood and the penalties for not having insurance increased.
So if prices are already lower than expected in the first year, they might continue to go down. As for why exactly the CBO seems to have overshot its estimate, it’s difficult to know, Pearson says. Part of it could have been that insurance companies wanted to counter this conventional wisdom that premiums would be high. Insurers need young and healthy customers to offset the older and sicker people who they have to cover under Obamacare. Lower prices help achieve that. However, those younger and healthier people will probably pay more for health coverage than they would now, Pearson says, a concern commonly cited by the law’s critics.
“There have been a lot of concerns in the market that because of the uncertainty of the population and the expectation that the highest-risk enrollees will enroll first, premiums are going to be really high,” Pearson says. “I think what this tells us is that that's not necessarily the case. Plans have understood that they need to price competitively.”
There are still some unknowns, though, which will determine whether these unexpectedly low prices persist. Most fundamentally, insurers are just guessing right now about how much their new exchange customers will cost. If those new enrollees end up costing more, and the lower premiums aren’t able to cover those costs, prices could go up. The ACA does have some protections against exorbitant premium increases -- any increase above 10 percent must be reviewed and approved by the federal government -- but it will be something to watch in the next few years.
For their comparison, analysts used the premium prices of the second-cheapest silver-level plans to be sold on the exchanges that will cover 70 percent of an enrollee’s medical costs and serve as the basis for the ACA’s tax subsidies. They used a 40-year-old non-smoker as their baromter.
Below is a table, courtesy of Avalere Health, which shows the premium variations across the nine states studied.
