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Why are Obamacare subsidies so low in Pittsburgh compared to the rest of the country?

Due to Highmark’s decision to offer two separate low-cost Community Blue plans in the Silver category of the Obamacare exchange, subsidies are much lower than they would be had Highmark only offered one such plan. Community Blue plans are less expensive because they do not have access to most UPMC facilities. As a result, access to UPMC facilities will not be affordable (as defined by the law) for people relying on subsidies. This is yet another aspect of the Highmark-UPMC war that has already caused so much damage to our region.


Here are the details on the issue that we are following regarding the very low level of Federal tax credits that people in southwestern Pennsylvania will receive to help them with monthly premiums for policies they enroll in on the healthcare Exchanges. As it turns out, greater Pittsburgh has the second lowest benchmark for these subsidies for all regions in the 36 states that have federally or jointly-run Exchanges. This seems to be a result of Highmark introducing its plans in such a way as to make it very expensive for people relying on subsidies to access UPMC facilities. Highmark will wind up steering patients to the West Penn Allegheny Health System, which they have acquired. However, the result is that many tens of millions of dollars LESS in federal tax credits will be coming into our area. This is how it works:

The subsidies are structured to make a benchmark plan affordable to people in a given income bracket. The government will provide tax credits (which can be sent directly to the insurance company up front) so that the premium payments for a benchmark policy will cost 2% of income for a single person making $12,000 a year (i.e. a $20 per month premium), while a single individual making $40,000 would pay no more than 9.5% of income (or $317 per month).  If someone wants a plan with better coverage, that person has to pay the full difference in premiums, while if someone is willing to purchase a less comprehensive plan then their payment will be that much less, or the plan may even be free. The benchmark plan is the second lowest-priced plan in the Silver category of the Exchange.

In the Pittsburgh Area, the benchmark plan (second cheapest silver plan) is a Community Blue plan with a $2650 deductible. Community Blue plans were the subject of controversy because they do not include most UPMC facilities in their network, which angered UPMC to the point that they have made it clear that they will not even admit patients at all, even if the patient is willing to pay full price. The first cheapest plan in the silver category is a very similar Community Blue plan with a $2750 deductible. Community Blue plans with their limited network are MUCH cheaper than all the other plans available in the exchange. The third cheapest plan in the silver category, which is a Highmark plan with a network that DOES provide access to UPMC facilities, is 39% more expensive than the benchmark plan.

This is the key point: If Highmark had only offered ONE Community Blue plan in the silver category instead of these TWO very similar ones, the benchmark policy would be that Highmark Plan WITH access to UPMC mentioned above. It would cost the person with the $12,000 income the same $20 per month and would cost the person with a 40,000 per year income no more than $317 per month, but of course it would provide access to UPMC. The government would be making up the difference with a larger subsidy. For many people that subsidy would be large enough that if they wanted the cheaper Community Blue plan, it would be free. Similarly, people could apply the larger subsidies towards any other plan in the Exchange, making them correspondingly cheaper. Depending on income level, the difference in subsidy level could be $51 per month for a 21-year-old and $154 per month for a 64-year-old.

Remember, Highmark could have given us the option of a low-priced, limited network plan without depressing the subsidies by only offering ONE Community Blue plan in the silver category. The federal government issued guidelines for identifying “outliers,” i.e. plans whose premiums are much higher or lower than the average for their class. However, according to the Pennsylvania Insurance Department, the statistical tests suggested by the federal government for identifying outliers simply do not work in situations where the number of plans you are looking at is small. (There are only 13 plans in the silver category in Pittsburgh.)

Also, the federal government didn’t want a company to “monopolize virtual shelf space” by offering a large number of plans that were essentially the same. Highmark does not quite run afoul of these guidelines with its two silver Community Blue plans as they differ by just enough to stay within the guidelines.

Finally, if it turns out that Highmark loses money on these very low priced Community Blue plans, the Affordable Care Act allows them to go back to the Federal government for a true-up to compensate them for much of their losses for the first two years.

The end result is that there will be maximum utilization of Highmark’s troubled West Penn Allegheny hospital system, but it comes at the expense of tens of millions of dollars less in subsidies to the Pittsburgh area and it forces many people to have to pay more than they can afford in order to continue to see their doctors at UPMC.