Early Estimates of Premium Impacts on 2017 Spending
On November 1, coinciding with the beginning of open enrollment for the Individual Marketplace’s 2017 plan year, 2017 premiums were released. In this paper, The Center for Health and Economy (H&E) seeks to draw out the implications that premium increases might have on federal spending for advanced premium tax credits in 2017. Using the Department of Health and Human Services’ (HHS) estimates for 2017 monthly enrollment and our own premium subsidy estimates, H&E expects federal spending on premium tax credits to increase by $9.8 billion from 2016 to 2017.
Data and Methodology
The primary source of data for premium estimates are the 2016 and 2017 individual market medical landscape files that are available through the Centers for Medicare and Medicaid Services (CMS). These files contain data on the health insurance plans that are offered through the federally-facilitated or federal-state partnership exchanges. For 2016 state-based exchanges we used exchange data provided by the Robert Wood Johnson Foundation. Then for 2017 state-based exchanges, data was collected through insurer rate filings or exchange websites. Overall, we analyze data on 2016 and 2017 Silver plans for 50 states, which account for counties in 499 of the 501 rating areas nationwide.
We calculate a weighted average of the effects in each county using a potentially eligible population. The potentially eligible population is defined as the number of individuals who are either uninsured or insured through the individual market, ineligible for Medicaid or the Children’s Health Insurance Program, and determined to be a legal resident. We estimate this population using the 2011-2013 American Community Survey. Using this data, we then synthesize a 2017 population that matches the 2016 marketplace distributions for age, federal poverty level (FPL), and location of the Health Insurance Marketplace—as well as HHS’s estimated effectuated monthly enrollment of 11.4 million for 2017. In this report, we assume that the 2017 Health Insurance Marketplace population is roughly proportional to the 2016 population in terms of income, age, and location.
All the premium estimates used for this report are based on those offered to non-smokers. In our analysis of 2017 benchmark plans, we consider the pre-subsidy premium for a 27-year-old non-smoker. Where we consider the implications for families, we calculate the premium for a married couple of 27-year-olds with two children. For each of these groups, we adjust premiums according to age using the default standard federal age curve. In cases where the state of residence has a more constraining age ratio, the state’s ratio is used. After differentiating premiums by age and location, we then use the 2017 income contribution scale and along with the 2017 federal poverty guidelines for calculating the premium subsidy.
Estimating 2016 and 2017 Spending
According to HHS, the total effectuated enrollment in 2016 was roughly 11.1 million—9.4 million of which received premium tax credits. Of those receiving tax credits, the average monthly tax credit received was $291. If it is assumed that the monthly effectuated enrollment and premium tax credit enrollment remained constant throughout 2016, then about $32.8 billion was spent in 2016 on premium tax credits alone.
|Premium Tax Credit Spending and Enrollment Estimates|
|Effectuated Enrollment Estimates||11.1 million||11.4 million|
|Beneficiaries Receiving Premium Tax Credits||9.39 million||9.65 million|
|Premium Tax Credit Spending||$32.8 billion||$42.6 billion|
Using the methodology above, H&E estimates that the 2017 Silver benchmark plan will be 22 percent more expensive, on average, than 2016 benchmark plans. However, because of the distributions of the population in the marketplace and the lack of household income growth to match premiums, we expect the average monthly tax credit to increase by 26 percent to $367. If we assume that the proportion of enrollees receiving premium tax credits remains the same from 2016 to 2017, then the expected federal spending on premium tax credits for 2017 would be $42.6 billion.