In major cities across the country, Obamacare premiums are falling.
That is not normal; health-insurance premiums nearly always go up and up and up. They rarely, if ever, decrease.
But analysts at the Kaiser Family Foundation have scoured insurers rate filings and find that premiums for Obamacare's benchmark plan will decrease, on average, by 0.8 percent across 16 large cities. That could be early evidence that a key premise of Obamacare is working: insurers are competing on the marketplaces, and that could be driving health insurance prices down.
Premiums fall 0.8 percent for Obamacare's benchmark plan
The Kaiser Family Foundation published data on what exchange premiums will look like at 2015, using insurers' rate filings in 16 large cities. They looked at the price of the second-lowest cost silver plan in each market.
This is know as the benchmark plan under Obamacare and it's important — the government uses its price to figure out the size of each shopper's subsidy. The health-care law has set limits for how much it expects people of different incomes to pay for the benchmark plan before the federal government subsidizes the rest.
KFF found that, on average, these benchmark premiums would decrease by 0.8 percent in 2015.
I expected premium growth to be modest in most of the country," says Larry Levitt, senior vice president for special initiatives at the Kaiser Family Foundation and a co-author of the report."But what we saw were some decreases instead."
Not every city will see a decrease: the change in premiums ranges from an increase of 8.7 percent in Nashville to a decrease of 15.6 percent in Denver. But every city is seeing slower growth than the individual market typically did before Obamacare. Separate research from the Commonwealth Fund has found that individual premiums rose by about 10 percent each year from 2008 through 2010.
Not all plans show the same trends as these benchmark products. The KFF research also looks at the lowest-cost bronze plans. These are typically the very cheapest option on the market, offering the least robust coverage — and the least expensive way to meet Obamacare's individual mandate.
KFF projects that, in the same 15 cities, the lowest cost bronze plan premium will increase by 3.3 percent in 2015. Not a drop like the benchmark plans, but also much lower than those 10 percent premium increases in the pre-Obamacare era.
Why are benchmark premiums dropping?
One view of this data is that a key premise of Obamacare — that making insurers compete for customers' business would lower prices — is working.
"I think what we're seeing is a lot of marketing strategy," Levitt says. "Some who priced high are coming down, sometimes, dramatically, in their premiums. And some insurers who attracted a fair amount of marketshare last year are confident they can keep their enrollees, and might raise their prices."
There doesn't seem to be any clear relationship between number of insurers on a state marketplace, and how much premiums dropped. This chart below shows how many carriers each state has. The states with the biggest increases are on the left; those with the biggest declines on the right.
Another read of this data is that health plans are lowering their prices right now to woo customers — but those changes many not stick in the future. It's possible that, as millions of uninsured Americans pick new plans, insurers are trying to lure customers in with a bargain. Health insurance plans tend to be sticky products; once customers pick one, they're unlikely to switch. So it's possible this is a play by insurers to build a customer base and then raise prices.
It's possible that either of those analyses are true; or that neither are. The KFF data only hits on 16 cities and isn't a comprehensive look at everything happening in Obamacare's insurance markets. Different trends could be happening in rural markets, for example, that wouldn't show up in this particular analysis.
Good news for the federal government
The decrease in premiums isn't just good for Healthcare.gov shopper, it's good for the federal budget. The amount the government has to pay in subsidies is tethered to the price of the benchmark plan — the plan that's falling, on average, by 0.8 percent. When the price of that plan goes down, so does the government's per person spending obligation.
"For the government this is unambiguously good news," Levitt says. "This suggests government cost growth for tax credits should be quite modest, independent of how ever many more people enroll."