(Bloomberg View) — Last week, the Centers for Medicare & Medicaid Services (CMS) released the 2016 premium data for the “benchmark” plans in the states that use the federal HealthCare.gov exchange enrollment system. Those are the “second-lowest-cost Silver plans” in each area, with the second lowest-cost silver plan being a benchmark chosen by health care experts using arcane methods involving chicken entrails and a pound of dry rhinoceros horn.
(Just kidding! They don’t use rhinoceros horn, which would be illegal. They use the ground-up bones of an ox slaughtered at midnight on the summer solstice.)
This batch of data, which showed premiums rising an average of 7.5 percent, is useful. But it is limited. We’d like to think that this tells us “how much premiums went up,” but it’s not that simple.
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First of all, while the subsidies are pegged to the benchmark plan, not everyone buys that plan. Some people buy the cheapest Silver plan. Some people buy a more expensive one. Some people buy an even cheaper Bronze plan, and some people spring for Gold or Platinum coverage. Knowing how the price of the benchmark has changed tells us a great deal about how the subsidies will be calculated in 2016, but not nearly as much as we’d like to know about what people are experiencing in the marketplace.
Moreover, the change in the benchmark rate doesn’t even tell us about the cost of any particular plan. Last year’s second-cheapest policy could be this year’s most expensive, if the insurer decides that it got the pricing wrong, while some other insurer slides into the benchmark spot.
Does that matter, you may ask? This tells us what price people can buy insurance at.
But insurance is not an undifferentiated good, like pork bellies or concentrated frozen orange juice. People don’t want to “be insured” so much as they want to “get health care” — from providers they like, with the drugs and services they want in the benefit list. If the same package you got last year cost more, you probably aren’t comforted to know that a different package you didn’t want is still very affordable.
Besides, most people don’t actively shop for health insurance every year; well under half of people who bought a policy in 2014 returned to the exchange to look for a new one in 2015. If their policy went up by more than the benchmark rate, then they will be paying the difference out of pocket.
And that matters a lot, because subsidies are probably the biggest thing keeping the markets from sliding into the dreaded adverse-selection “death spiral,” in which sick people are more likely to buy insurance, so the pool is sicker and more costly, so prices go up, so the healthiest folks decide the insurance isn’t worth it, so the pool gets sicker and more costly….