More Choice in Health Insurance Marketplaces May Reduce the Value of the Subsidies Available to Low-Income Enrollees

Published in: Health Affairs, v. 34, no. 1, Jan. 2015, p. 104-110

Posted on RAND.org on January 09, 2015

by Erin Audrey Taylor, Evan Saltzman, Sebastian Bauhoff, Rosalie Liccardo Pacula, Christine Eibner

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Research Question

  1. To what extent do the premium and deductible for the second-lowest-cost silver plan differ geographically, and is there an association between the number of silver plans in a geographic market and the value of the tax subsidy?

Federal subsidies available to enrollees in health insurance Marketplaces are pegged to the premium of the second-lowest-cost silver plan available in each rating area (as defined by each state). People who qualify for the subsidy contribute a percentage of their income to purchase coverage, and the federal government covers the remaining cost up to the price of that premium. Because the number of plans offered and plan premiums vary substantially across rating areas, the effective value of the subsidy may vary geographically. We found that the availability of more plans in a rating area was associated with lower premiums but higher deductibles for enrollees in the second-lowest-cost silver plan. In rating areas with more than twenty plans, the average deductible in the second-lowest-cost silver plan was nearly $1,000 higher than it was in rating areas with fewer than thirteen plans. Because premium costs for second-lowest-cost silver plans are capped, deductibles may be a more salient measure of plan value for enrollees than premiums are. Greater standardization of plans or an alternative approach to calculating the subsidy could provide a more consistent benefit to enrollees across various rating areas.

Key Findings

  • All enrollees have some plan choice but the amount of choice varies across geographic regions.
  • In areas with many plan offerings, premiums for the second-lowest-cost silver plan, to which federal subsidies are pegged, were lower than those for the average silver plan. However, deductibles were much higher in markets with more plans offered, suggesting that the total value of the plan to the enrollee may not be cheaper.
  • Individuals receiving a premium subsidy in areas with significant competition may have higher out-of-pocket expenditures, not all of which are subsidized. Thus, the total value of their subsidy may in fact be smaller in markets with lots of plan choice than in markets with fewer plans offered.

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