Covered California, California’s state based marketplace for the ACA individual market, released their initial rate projections for 2020.
The headline is good news:
California’s Initiatives Will Lead to Hundreds of Thousands Gaining Health Care Coverage With Lower Premiums and New Financial Help
And the chart is interesting.
The headline version is that the most commonly bought plan, silver, are getting cheaper. YEAH!!!! Good news!!!
Maybe, maybe not!
And this is where the ACA gets complex.
Cheaper silver plans are good news for non-subsidy receiving buyers who want to buy a silver plan. Everything after that gets way more complex.
If we assume that the least expensive silver plan and the second least expensive silver plan are moving in the same direction for pricing, then we assume that the benchmark plan is lower in gross premiums. As the cheapest bronze plan is now more expensive in 2020 than it was in 2019 and the benchmark silver plan is now cheaper, the least expensive plan is now more expensive for anyone receiving a subsidy as the silver spread is smaller.
We care about the net of subsidy premium for the least expensive bronze plan because this influences the size and health of the risk pool. The cheaper it is, the bigger the risk pool and the healthier the risk pool. The most marginal buyer is going to be fairly healthy and very price sensitive.
ACA pricing and subsidization rules leads to the situation where lower absolute and relative benchmark premiums can be a bad thing for some segments of the market.