Levels and spreads

The Center for Medicare and Medicaid Services just issued a press release trumpeting a decrease in the benchmark premiums for the individual market plans sold on Healthcare.gov.

the average premium for the Second Lowest Cost Silver Plan (SLCSP) is expected to drop by 1.5 percent.

This brings up a good example of the conflict between levels and spreads. Average premiums across the county went up by about 3%.

If average premiums went up and a specific subset of plans went down, that implies other plans went up faster than the overall aggregate increase in premiums. If this situation was for anything other than the benchmark plan it would be a meaningless idiosyncrasy. However it is the benchmark plan.

Subsidies are tied to the level of the benchmark plan. The subsidy is the gap filler between an individual’s expected contribution and the final premium. If an individual buys a plan that is less expensive than the benchmark, they get a dollar for dollar in the premium that they pay. If an individual buys a plan that is more expensive than the benchmark, they pay the entire incremental increase in premium.

If the benchmark decreases and other plans increase, this means that the plans that are less expensive than the benchmark in 2018 are still less expensive than the benchmark in 2019 but the gap is smaller. A smaller gap means higher premiums that the individual pays every month. For plans that are more expensive than the benchmark, the lower benchmark and higher everything else implies higher net of subsidy premiums for the buyer as well.

Lower benchmark premiums in the context of generally higher premiums for everything else is good for the federal government’s budget and potentially good for a small subset of off-exchange buyers but it is either neutral or higher premiums for everyone else.

4 replies
  1. 1
    FelonyGovt says:

    Just signed up for Medicare and, coming off a Covered California (Affordable Care Act) plan, I was unpleasantly surprised by how much I’m going to need to pay for decent coverage under Medicare. This is really tricky stuff.

  2. 2

    @FelonyGovt: Yeah, people think it’s free. Not so.

  3. 3
    lamh36 says:

    Hey David, been meaning to pick your brain bout something. I’ve got this term paper to write for my Health Care Economics class. I’ve finally settled on a subject matter.

    I’d like to write my on the effect of the new Protecting Access to Medicare Act (PAMA), that went into effect on Jan 1, 2018. PAMA called for the new market-based payment schedule that could cut Medicare/Medicaid payments for lab services up to 30%.

    My paper would explore the effects on the laboratory and some ways laboratories are adjusting to the new fee reimbursement realities.

    Course the problem is, it is often very hard to get information about new policies since they have not been around long enough for people to write about them scientifically.

    And in fact, the majority of the information available on the impact of PAMA on laboratory are all theoretical analysis based on the pre-PAMA pricing being compared to the “expected” pricing. There is one recent study with information from the 1st quarter of the current year, that was just published by the National Independent Laboratory Association, where they “conducted eleven key informant interviews with selfselected representatives from community and regional independent clinical laboratories.”


    I’d like to focus on the PAMA changes, but so far, there isn’t much current empirical data on the effects of it since it only took effect 10 months ago.

    I ran the topic by my professor, and he said to go ahead with my proposal (have 2 weeks to submit a proposal on the paper), but to make sure to present it as predictive rather that factual?

    I’d love to know if you know of any other links or resources I can turn to that may have some more info…or at the very least the most up to day info from before PAMA went into effect, I figured I’ll have to end up basically comparing the solid empirical figures from before to the “expected” figures that lab mgr pros are expecting…

    Any resources ya can send me, I’d really appreciate it…you can get send me an email, the other FPers have emailed me before.

    Thanks in advance

  4. 4
    piratedan says:

    @lamh36: its funny, once upon a time, the lab was a revenue generator for hospitals, nowadays, based on reimbursement limits, I wonder if that is still the case… I’ve never seen a cost analysis done on how much money it takes to run a test versus what they are paid for providing that data. No one ever seems to be able to account for the cost of the instrumentation, the networking of said instrument to an application and a network and the training of staff it takes to run the test, the reagents used by the instrument to perform the calculations to derive the result, the staff it takes to obtain and deliver said specimen to the lab itself. There are a boatload of things that have to happen before a specimen is even obtained and that never appears to be considered when all of these arbitrary dictates come down from on high regarding who will pay what for any said item.

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