Premium Affordability, Competition, and Choice in the Health Insurance Marketplace, 2014

Amy Burke, Arpit Misra, and Steven Sheingold

Department of Health and Human Services
Office of the Assistant Secretary for Planning and Evaluation

This brief provides an overview of health insurance plan premiums available in the 2014 Marketplace and the important role of the advanced premium tax credit (“tax credit”) in helping families afford coverage. It contains information on the change in the premium cost associated with the tax credit for individuals who made Marketplace plan selections through the Federally-facilitated Marketplace (FFM) during the initial open enrollment period. Also, it analyzes over 19,000 Marketplace plans for 2014, within four metal levels (bronze, silver, gold, and platinum) for each of the 501 rating areas across 50 states and the District of Columbia. Tax credits reduced premiums by approximately 76 percent, on average, for individuals who selected plans in the FFM with tax credits. Competition, as measured by the number of issuers in a rating area, was associated with more affordable benchmark plans (the second-lowest cost silver plan).

A central feature of the Affordable Care Act¹ is the establishment of the Health Insurance Marketplace (“Marketplace”) where consumers can purchase health insurance plans in a competitive market. Consumers may be eligible for financial assistance to offset the cost of premiums, if their income meets certain requirements.² Since October 1, 2013, over eight million Americans have selected a private health insurance plan through the Marketplace, the vast majority of whom are receiving financial assistance—making coverage even more affordable.³

As an initial step to understanding how the Marketplace is working in its first year of operation, and in looking forward to future years, we provide an overview of health insurance plan premiums available in the Marketplace and the important role of the advanced premium tax credit (“tax credit”) in helping families afford coverage. We analyze data on the change in the premium cost associated with the tax credit for Marketplace plan selections that were made through the Federally-facilitated Marketplace (FFM) during the initial open enrollment period.

Also, we examine over 19,000 Marketplace plans⁴ for 2014, within the four metal levels (bronze, silver, gold, and platinum)⁵ for each of the 501 rating areas across 50 states and the District of Columbia.⁶ Our analysis shows how differences in plan and market characteristics are associated with differences in premiums across the nation.

¹  The Patient Protection and Affordable Care Act, Pub. L. 111-148, was enacted on March 23, 2010; the Health Care and Education Reconciliation Act of 2010, Pub. L. 111-152, was enacted on March 30, 2010. In this research brief, we refer to the two Acts collectively as the Affordable Care Act.

²  The type of financial assistance offered is known as “The Premium Tax Credit (PTC)” and is calculated as the difference between the cost of the adjusted monthly premium for the second-lowest cost silver with respect to the applicable taxpayer and the applicable percentage determined by household income that a person is statutorily required to pay. An individual may choose to have all or a portion of the PTC paid in advance to an issuer of a qualified health plan to reduce their monthly premiums. This is referred to as the “Advance Premium Tax Credit” (APTC). APTCs are provided to people with projected household income between 100 percent (133 percent in states that have chosen to expand their Medicaid programs) and 400 percent of the Federal Poverty Level (FPL). A reconciliation of the APTC paid on behalf of an individual or family and the PTC they are eligible for will occur during their annual tax return. If an individual receives a greater APTC than the PTC they are determined eligible for, the individual may be required to repay the difference. The  applicable percentage that a qualified individual or family will pay toward a health insurance premium will range from 2.0 percent of income at 100 percent FPL to 9.5 percent of income at 400 percent FPL.

³  For more information, see the Marketplace Summary Enrollment Report, which can be accessed at http://aspe.hhs.gov/health/reports/2014/MarketPlaceEnrollment/Apr2014/ib_2014Apr_enrollment.pdf.

⁴  A Marketplace plan is a qualified health plan (QHP) that has been certified to be offered in a Marketplace. A health insurance issuer may offer multiple Marketplace plans. For example, a silver plan and a bronze plan from one health insurance issuer would be counted as two Marketplace plans. Catastrophic plans were not counted toward this total. This analysis also excludes Virginia plans that required coverage of bariatric surgery as these were extreme price outliers.

⁵  The Affordable Care Act requires that Marketplace plans must be one of four tiers, or “metal levels,” based on actuarial value (AV) (Catastrophic plans are exempt from this requirement). Section 1302(d)(2)(A) of the Affordable Care Act stipulates that AV be calculated based on the provision of essential health benefits (EHB) to a standard population. The statute groups the plans into four tiers: bronze, with an AV of 60 percent; silver, with an AV of 70 percent; gold, with an AV of 80 percent; and platinum, with an AV of 90 percent. The final rule implementing the calculation of AV establishes that a de minimis variation of +/- 2 percentage points of AV is allowed for each tier.

⁶  Plan and premium data were taken from the following publicly available sources: Healthcare.gov, state rate filings (where available), and State-based Marketplace websites.

⁷  Represents individuals who have selected a Marketplace plan with a non-zero tax credit.