Good News! Obamacare Premiums Are Going Down — But Buyer Beware

U.S. President Barack Obama looks towards Press Secretary Jay Carney during a joint news conference with Philippines President Benigno Aquino III at Malacanang Palace in Manila, the Philippines, Monday, April 28, 201... U.S. President Barack Obama looks towards Press Secretary Jay Carney during a joint news conference with Philippines President Benigno Aquino III at Malacanang Palace in Manila, the Philippines, Monday, April 28, 2014. President Obama said a 10-year agreement signed Monday to give the U.S military greater access to Philippine bases will help promote regional security, improve armed forces training and shorten response times to humanitarian crises, including natural disasters. (AP Photo/Charles Dharapak) MORE LESS
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Obamacare’s premiums are going down on average in 2015, according to a report released last week by the Kaiser Family Foundation, and that’s good news overall and particularly good news for the federal government that helps pay the premiums for more than 80 percent of enrollees.

But, as always, there is a bit of a catch. Premiums are changing in a way that consumers need to be aware of. The benchmark being used to determine their subsidies under the law is changing in some places — meaning some people will need to switch to a new plan to keep paying the same premium or they might have to pay more to keep the plan they currently have.

After the keep-your-plan fiasco of last fall, the Obama administration has set up an auto-renew feature for Obamacare enrollees in 2015. The administration has also issued guidance that insurance companies should notify customers that they can shop on the insurance marketplaces for other deals. But the big unknown is: Will they? If enrollees go the auto-renew route without exploring the market, they could be stuck paying more for their coverage.

While this all could create some hiccups during the upcoming enrollment period, it’s not a bug. It’s part of the law’s structure. The government needed some baseline for its subsidies. And that does put a bit of the onus on consumers to make sure they aren’t left with a bigger bill. Here’s how it works:

Obamacare tax credits are based on the second-cheapest silver plan, a typical plan that covers 70 percent of medical costs, which is what the Kaiser Family Foundation analyzed. If somebody’s plan is more expensive than that so-called benchmark plan, then the customer has to pay the difference once their tax credits are accounted for. (They could also pocket the difference if their plan is less expensive).

The issue is, the benchmark plan could change from one year to another. Kaiser’s Larry Levitt and others have been warning about that for a while. The new Kaiser report offered some hard evidence about what that will look like for 2015 Obamacare enrollment.

In Colorado in 2014, for example, the benchmark was a Humana plan that cost $250 per month before any subsidies were applied. In 2015, according to Kaiser, it will be a Colorado Health Insurance Cooperative plan thats cost $211.

In that situation, assuming the Humana plan stayed the same price from 2014 to 2015, a Humana enrollee would either have to pay the extra $39 (after tax credits) to keep their current plan or switch to a new CHIC plan to pay the same price. It’s not ideal, but it’s the way the law works.

In total, Kaiser found the benchmark plan would change from 2014 to 2015 in 10 of the 16 areas that it analyzed. An Avalere Health analysis in June estimated that benchmark plans would change in six of the nine states it studied. So this is going to be an issue for people all over the country.

And while the Obama administration, which wants to hold onto as many of the law’s 8 million 2014 enrollees as it can, set up the auto-renewal feature for them, these findings are a reminder that customers should be aware of their options and shop around, Kaiser’s Levitt said in announcing the new study.

“Consumers should go into the open enrollment period prepared to shop for the best deal all over again,” he said. “You could end up paying more if your insurer is no longer offering one of the low-cost plans, so you should look carefully at your options.”

Overall what the Kaiser Family Foundation researchers found in studying premiums in 16 metropolitan areas across the country is good news for the insurance market under Obamacare: Premiums for the second-cheapest silver-level plan went down by an average of 0.2 percent.

It varied significantly by region, from an average 8.7 percent increase in Nashville to an average 15.6 percent decrease in Denver, but overall it is a positive sign. Insurance companies are still figuring out how the market is working under Obamacare, but numbers like these suggest that enrollees have been less costly than insurers expected and that insurers are still bidding low to attract more customers. All signs of a healthy market.

To put the news in context, Kaiser president Drew Altman noted in a statement: “Double digit premium increases in this market were not uncommon in the past.”

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