Individuals shopping for health insurance may have often come across the term benchmark plan because this term has been extensively used in the health insurance sector since the Affordable Care Act was made effective. The term “benchmark plan” generates confusion in the mind of people especially because it is used to describe two separate aspects of the law’s regulations that prove to be confusing for consumers. If people have a good understanding of both types of the benchmark plan, then the context will let them figure out which benchmark plan is being referenced.
Two types of plans that are referred to as benchmark plans are:
The second-lowest-cost silver metal plan offered through the exchange in each state or area in the individual health insurance market.
The individual health plan that is used by each state to define essential health benefits within that state for individual and small group plans.
Both these plans are named benchmark plans but have very different concepts that lead to confusion among consumers. To clearly understand the difference, people need to understand how both these benchmark plans work.
1st Benchmark Plan – The Second-Lowest-Cost Silver Plan in the Exchange
The ACA’s premium subsidies amounts for eligible people are determined based on the after-subsidy premium of the second-lowest-cost silver plan at a pre-determined percentage of the enrollee’s income. The second-lowest-cost silver plan is called the benchmark plan. This plan varies from one area to another and from one year to the next because its status of the benchmark plan is determined completely on its price compared to other silver plans available in that area. Thus, within a state, there may be different benchmark plans, especially if the state has an insurance market that differs from one location to another. However, there may be a single plan in a state that holds the status of benchmark plan throughout the state, if the state has a single insurer or all the insurers available in the state offer consistent pricing across the state.
Consumers can know the cost of the benchmark plan for the coming year during the individual plan’s open enrollment period. During this period, they can also check the premium subsidies amount if any that they will receive, based on the cost of the benchmark plan for that enrollee, the cost of the plan they are looking to buy, and the percentage of their income that they would be expected to pay for the benchmark plan. The health insurance exchange carries out all such calculations for the enrollees. With health insurance carriers changing the price of plans every year, even the benchmark plan changes, and also the insurance carrier offering it.
Usually, the benchmark plan of an area remains the same for the complete year unless the carrier exits the market mid-year. However, consumers need to understand the takeaway point that their premium subsidy depends upon the amount that would cost them to buy the benchmark plan. Consumers can use the subsidy amount to buy any category of a metal plan from the exchange. It is not necessary for people to buy the benchmark plan but their premium subsidy will be the same amount, irrespective of the plan they choose. The after-subsidy premium amount considerably varies for people depending upon the plan they choose.
The average benchmark premiums in the 38 states that use HealthCare.gov in 2020 were 4% lower than the average benchmark premiums of 2019. Though there is a variation from one state to another, but the overall average benchmark premiums price decreased in 2020. Since premium subsidies are attached to benchmark premiums, so average premium subsidies were less in 2020 compared to 2019.
2nd Benchmark Plan – State-Based Standards for Essential Health Benefits
The second type of benchmark plan is the state’s reference plan that determines the benefits that are covered by individual and small group plans in the state. All the individual and small group plans that are effective from 2014 or later should cover the ACA’s ten essential health benefits. Expect for pediatric dental and vision coverage, all the other nine essential health benefits must be integrated with all ACA-compliant individual and small group plans. Therefore, it becomes essential to know what is considered an essential health benefit. The Affordable Care Act has broadly defined the ten essential health benefits, and the law has also tasked the Department of Health and Human Services to ensure that essential health benefits would be equal to the benefits offered by a normal employer plan.
It was left to the HHS by the federal government to sort out all the details related to the benchmark plan and HHS tasked every state to designate a benchmark plan that would be used as the reference plan for new individual and small group plans in the state. States were allowed to choose their benchmark plan from the below-given options:
- One of the three largest small-group plans in the state. (Largest in terms of enrollment)
- One of the three largest state employee health benefit plans. (Among the coverage provided to state employees)
- One of the three largest federal employee health benefit plans.
- The largest non-Medicaid HMO plan available in the state’s commercial market.
Any of the above-mentioned plans can be termed as benchmark plans, as all the above-mentioned plans offer solid, robust coverage, as these plans were offered to government workers or were chosen by a good number of businesses to provide coverage to their employees.
CMS gave more flexibility to states in designing their EHB benchmark plans in the year 2020, as per the regulations included in the 2019 Benefit and Payment Parameters. A state now has the option to adopt another state’s benchmark plan as its own or can incorporate segments of different states’ benchmark plans to create its own benchmark plan. Besides, states were even allowed to select or design a new benchmark plan every year instead of continuing the same benchmark plan that was picked for the 2017 year. Illinois has modified its benchmark plan in 2020 and South Dakota will modify its benchmark plan in 2021 as per the new rules and all other states have opted to continue using the benchmark plan that they were using from 2017 to 2020. nearly all the states use small group plans as their benchmark plans. All the individual and small group plans offered in a state should include substantially equal coverage offered by the benchmark plan selected by the state.
Now when people will hear someone talking about a benchmark plan related to the Affordable Care Act, the context will help them determine which type of benchmark plan is being discussed. Whether people are talking about the second-lowest-cost silver plan of the individual market available on the exchange or the plan that the state has chosen to serve as the basic benefits package based on which all the ACA-complaint individual and small group plans in the state are based.