Q. If all of the Silver plans in an exchange must offer the same basic benefits, and cover roughly 70% of the cost of those benefits, why do premiums vary from carrier to carrier?
A. First, it’s important to understand that the benefits offered by plans at the same metal level can vary significantly from one plan to another. All plans must include the ten essential benefits (although pediatric dental works a bit differently from the other nine). But they can provide that coverage with very different specifics for the benefits.
In order to be designated Silver, a plan’s actuarial value (AV) must be between 66% and 72% (this range in and of itself is part of the reason for pricing variations; a plan that provides 72% AV is likely going to be more expensive than a plan with 66% AV, but they’re both Silver plans). That indicates the percentage of average costs that the plan will cover – but that’s across the entire enrolled population.
(It’s important to note here that if you’re shopping for coverage in your state’s health insurance marketplace and you’re eligible for cost-sharing reductions, the silver plans available to you will have higher AV than normal silver plans, ranging from 73% to 94% (ie, better than a platinum plan on the upper end of that spectrum, with the specifics depending on your income level). Cost-sharing reductions are available on marketplace silver plans as long as the enrollee’s income doesn’t exceed 250% of the poverty level.)
A person who is very healthy and uses very little in services might end up paying the bulk of her own expenses during the year, via copays and her deductible. On the other hand, a person with a serious health condition might end up with 99% of her costs covered by the plan, since her deductible and maximum out-of-pocket might pale in comparison with the amount that the insurer pays after the out-of-pocket maximum is met.
The other metal levels have AVs in the range of 60% (Bronze), 80% (Gold), and 90% (Platinum). But carriers can structure their plans however they like, as long as they conform to the AV requirements and any other applicable mandates – like the inclusion of essential health benefits, for example.
Secondly, prices will vary by location. Even within a state, healthcare may well be more expensive in one city than in another, depending on cost-of-living and what doctors and hospitals in that town charge.
Third, some plans may offer “extras” above and beyond the 10 essential benefits.
Fourth, plans can take different approaches to managed care, operating as an HMO, EPO, PPO, POS, or a hybrid model. Premiums will vary depending on the managed care design and the plan’s rules.
And fifth, different plans will use different networks of doctors and hospitals who agree to provide care to their customers at a certain price. But some doctors and hospitals charge far more than others, even for simple procedures, and they may refuse to negotiate with insurers. These providers are not necessarily better, but they have a brand name that lets them command higher prices. If the carrier wants to keep premiums down, it may well exclude some very expensive providers from its network. Thus, less expensive silver plans are likely to offer access to a narrower network.
Insurers know that when customers shop in the exchanges they will be checking to see which hospitals and doctors are included. If the network is too narrow, the carrier could lose market share. At the same time, polls show that younger consumers (aged 18 to 34 years) are three times as likely to be willing to give up their choice of doctor for a lower health insurance cost. And those healthy 18- to 34-year-olds are precisely the customers insurers want.
If you’re eligible for a premium tax credit (subsidy), the amount of your subsidy will be based on keeping the cost of the benchmark silver plan at a level that’s considered affordable. But you can apply your subsidy to any metal-level plan. If you pick a plan that’s more expensive than the benchmark, you’ll pay the extra cost. If you pick a plan that’s less expensive than the benchmark, the subsidy will cover a larger chunk of your premium (possibly all of it, depending on the circumstances).