A Complete Overview on a Benchmark Plan

individual health insurance

The term “benchmark plan” is extensively used since the enactment of the Affordable Care Act. Albeit it describes two vital aspects of the law’s regulations that consumers may find it confusing or hard to understand. If people have a good understanding of both the types of benchmark plans, then the context will let them determine which definition is being referred.

What is a Benchmark plan?

A benchmark plan is the second-lowest-cost silver plan in the exchange of each area, in the individual health insurance market.

OR

A benchmark plan is a plan used by each state to define essential health benefits within that state for individuals and small group plans.

How Both the Benchmark Plans Function?

Both of the above-mentioned plans have the same name but have two very different concepts that often lead to confusion. Thus, individuals should be aware of the working of both types of benchmark plans:

The Second-Lowest-Cost Silver Plan in the Exchange

For all the individuals eligible for the ACA’s premium subsidies, the subsidy amount depends on maintaining the after-subsidy premium of the second-lowest-cost silver plan at a pre-determined percentage of their income. Thus, the benchmark plan is the second-lowest-cost silver plan.

The benchmark plan is not the same and varies from one area to another and it also changes from year to year. It is because the benchmark plan is entirely determined by its price compared to the other silver plans available in that area. Thus, the state having a robust insurance market that varies from one locality to another, there may be several different benchmark plans. Whereas the state that has a single insurer or multiple insurers having consistent pricing throughout the state has a single plan that holds the benchmark spot across the state.

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During the individual plan open enrollment period, consumers get to know about the cost of the benchmark plan in the coming year. Besides, consumers will also get to know about the premium subsidies if any they will receive, based on how much the benchmark plan would cost for them, cost of the actual plan they wish to buy, along with their income. The exchange carries out all calculations for the consumers.

Every year a different insurance company can offer the benchmark plan, as health insurance companies change the prices of their plans every year. The prices are decided every year, so the benchmark plan in any given area will not change until the next year. This might not be the case only when an insurer exits the market in the middle of the year. The rate of the health plans can shuffle around because some insurers can increase the plan rates more than others and some may reduce the rates from the previous year.

However, individuals need to understand that their premium subsidy depends on the amount that would cost them to buy the benchmark plan. Individuals can use the subsidy to purchase any metal-plan in the exchange, as it is not essential for them to buy the benchmark plan. Though, their premium subsidy will be the same, regardless of the plan they choose.

The 38 states that use HealthCare.gov the average benchmark premiums for 2020 are 4% less than the average benchmark premiums of 2019. Though there is great variation from one state to another but the overall price of the average benchmark plan decreased in 2020 compared to 2019. Average premium subsidies are smaller for 2020 since premium subsidy amounts are tied to benchmark premiums.

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State-Based Standards for Essential Health Benefits

The other benchmark plan in each state is the reference plan that determines the benefits covered by individual and small group plans in the state. As per the ACA, all individuals and small group plans that are effective from 2014 or later are required to cover the ten essential health benefits. Though there is some flexibility for pediatric dental and vision coverage but all other nine essential health benefits have to be well integrated into all the ACA-compliant individual and small group plans. Large group plans however are not required to cover the essential health benefits and they cannot impose dollar limits on any essential health benefits that they cover.

Therefore, individuals need to clarify about the essential health benefit, as ACA has deliberately defined them with broad strokes. The law also ensured that the Department of Health and Human Services has to ensure that coverage will be equal to the scope of benefits provided under a normal employer plan. It is from here that the federal government left to HHS to sort out the details. HHS then tasked every state to designate a benchmark plan, which can be used as the reference plan for new individual and small group plans in that state. A list of FAQs about benchmark plans was published by HHS in 2012 and some extra guidelines were published in 2015. The following four options were given to the states to pick their benchmark plan.

  • One of the three largest enrolled small-group plans in the state
  • One of the three largest enrolled state employee health benefit plans
  • One of the three largest enrolled federal employee health benefit plans
  • The largest enrolled non-Medicaid HMO plan offered in the state’s commercial market.
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The above options were given with the idea that any of the options would offer complete, robust coverage, as these were offered to government workers or were chosen by a good number of businesses to insure their employees. Starting in 2020, CMS is giving states more flexibility to states in designing their EHB benchmark plans. A state can adopt another state’s benchmark plan or can incorporate different segments of various states’ benchmark plans to create its own benchmark plan.

Almost all of the states use small group plans as their Benchmark

Individual and small group plans offered in a state are required to include coverage that is substantially equal to the benefits offered by the benchmark plan selected by the state. Due to the variations in state benchmark plans, there are variations in some covered services from state to state based on either mandate that apply in the state, or differences from one state’s benchmark plan to another.

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