Misalignment between Premiums and Coverage Generosity Imposes Heavy Cost Burdens on Consumers in Health Insurance Exchanges

This report finds that consumer costs in the individual market were nearly $6 billion too high in 2020 because premiums in health insurance exchanges were not set consistently with Affordable Care Act (ACA) pricing rules. Those rules require premiums to reflect the characteristics of each plan, not the characteristics of those expected to enroll in each plan. This means that, if all else is equal, premiums for plans offering more generous coverage should exceed premiums charged for plans offering less generous coverage.

Starting in 2018, that basic rule required silver exchange premiums to exceed gold premiums in most states, since most silver members qualify for cost-sharing reductions that provide coverage more generous than gold plans. We find that, in most states, silver premiums are too low, which means that advance premium tax credits are too low, since APTCs are based on the cost of silver plans. If plans at each metal level reflected coverage generosity, 98% of consumers in the individual market would spend less for coverage and care. The group most affected, those with incomes between twice and four times poverty, would save nearly $1,000 a year, on average.