I would not have believed it had I not witnessed it with my own eyes. When I renewed the Covered California health plan for a client her monthly premium amount she will be responsible for will actually be lower in 2017. Even though the carrier had an overall rate increase and she was another year older, the Advance Premium Tax Credit monthly subsidy calculated by Covered California will be larger in 2017. The net result is she will be paying less than $5 per month for the same Silver health plan in 2017.
2017 subsidy larger than rate increase
While an individual’s monthly health insurance premium decreasing for 2017 sounds miraculous, it all revolves around the household circumstances the price of other health plans. First, virtually all health insurance rates for all plans and all carriers were increased for 2017. Regardless of age, Bronze through Platinum plans saw rates increase across California. Part of this was the elimination of the reinsurance provision, part was lower consumer cost-sharing mandated by Covered California, and, finally, the utilization of health care services and drugs was higher than anticipated. (See: Covered California increases benefits, increases rates).
Rates increases for each year older we are
Second, our health insurance rates are also based on age. Each year the premium rate increases because we are another year older. The health plans have to keep the rates capped at 300%. In other words, the highest rate at 64 years old can be no higher than 300% of the least expensive rate. But the rate increase is not a straight line from age 0 to 64. It looks more like a roller coaster as the percentage increase in the rates between ages can be larger between some ages than others. (See: Birthdays trigger rate increases)
Kaiser health plan rate increases modest
For my client, all she did was get another year older. That was a 9% increase in the rate. Kaiser also increased the rates of the Silver Plan in Region 3 by 3%. This gave my client an overall rate increase of 12%. Her income will be exactly the same in 2017 as it was in 2016. She is a musician with set engagements already for 2017.
Second Lowest Cost Silver Plan increase larger than Kaiser
While her health insurance premium increased by 12%, the Advance Premium Tax Credit (APTC), awarded to her by Covered California, increased by 17%. The question I had was why did her APTC increase so much more than her premium. In 2016 and 2017, the Kaiser Silver plan was the least expensive Silver plan available in her region. The APTC is based on the affordability of the Second Lowest Cost Silver Plan (SLCSP). But the SLCSP had a rate increase of 15% in her region.
So my client was the beneficiary of Kaiser keeping their rates stable while the other carriers had relatively steeper rate increases. Specifically, the difference in rates between Kaiser in 2016 and the SLCSP was approximately 3%. In 2017 that rate difference had grown to 6%. Since the formula for calculating the APTC is based on the premium of the Second Lowest Cost Silver Plan, larger increases in the SLCSP relative to the lowest cost Silver plan will benefit those consumers who select the least expensive Silver plan.
I was so surprised that her health insurance rate was decreasing for 2017 I asked if I could start attending her church. Obviously, anyone who has a health insurance rate decrease must be smiled upon from above. In reality, it is just the formula for calculating the APTC and the volatility in the health insurance market rates that played into her favor. But it’s still nice to think there might have been some divine intervention from the angels above.