The 2020 ACA premiums were released this morning. The press release headline is as follows:
Today, the Centers for Medicare & Medicaid Services (CMS) announced that the average premium for the second lowest cost silver plan on HealthCare.gov for a 27 year-old will drop by 4 percent for the 2020 coverage year. Additionally, 20 more issuers will participate in states that use the Federal Health Insurance Exchange platform in 2020 bringing the total to 175 issuers compared to 132 in 2018, delivering more choice and competition for consumers. As a result of the Trump Administration’s actions to stabilize the market, Americans will experience lower premiums along with greater choice for the second consecutive year.
The cynical take on this paragraph is that 2018 was a local minima due to massive policy, political and legal uncertainty. 2019 and 2020 are reactions to the re-stabilization of expectations and rule sets which were not present in 2018.
We know that 2018 was massively overpriced. We know that as insurers are paying out very large Medical Loss Ratio (MLR) rebates for the 2016-2018 plan years and are expected to pay out even larger rebates for the 2017-2019 period. If we assume that the final 2020 rates are reasonably rates that “should” be close to actuarially fair plus “normal” profits and admin costs, there are two pathways that we could have arrived at this price level with a starting point of 2017 being priced at a reasonable level high enough to cover claims and normal profits. The first is the path we took; massive rate hike in 2018 and then slight declines in 2019 and now 2020. The other is a slow and steady route.
Both paths get to the same exact endpoint. One path produces the headline of multiple years of premium decreases. The other one produces a headline of steady rate increases.