Obamacare

Obamacare Rate Shock and Premium Joy: Now It's Real

BY JONATHAN COHN

The conversation about Obamacare shifted a bit over the weekend. Nobody has forgotten about the technical problems with healthcare.gov. But now critics are also focusing on something else: Reports of sharp premium increases that some individual consumers are facing. In the last few weeks, several hundred thousand Americans have received notices from their health insurance companies, effectively cancelling their existing policies. These consumers can get new policies, of course, but frequently they have to pay more for them.

The news reports are real—and not at all surprising. Obamacare is transforming one part of the existing health insurance market, in ways that will force some people to pay more than they do now. But that’s only part of the story. Many other people, quite possibly the majority of people in that market, will pay less than they do now. And even those paying more will be getting more comprehensive, more secure insurance.

If all of this sounds familiar, it should. Health policy experts spent much of the summer arguing about this very point—about the likelihood of both “rate shock” and “premium joy” and which effect matters more. The lesson of that debate (at least to me) was that journalists, politicians, and anybody else talking about this should really provide a full, nuanced picture—noting all the ways Obamacare is affecting premiums and how that will play out for people in different situations.

But that doesn't seem to be happening, except at places like Politifact. More typical is a recent study from the Heritage Foundation suggesting that most people will end up paying more. That report continues to reverberate throughout the right wing press, even though it left out half the facts.

So here’s a quick refresher on what's really happening:

1. For the vast majority of Americans, very little is changing. Most Americans get insurance either through Medicare, Medicaid, or an employer. The Affordable Care Act isn’t doing much to alter premiums or out-of-pockets of these plans, at least for the time being. The big changes are mostly taking place in the “non-group” market—that is, for individuals who buy coverage on their own rather than through an employer.

2. One of Obamacare’s primary goals is to make sure everybody has a decent health insurance policy. Under the law, every plan should include a comprehensive set of benefits and put some limits on what people pay out-of-pocket. The policies now available in the non-group market frequently don’t meet those standards. They might leave out benefits like maternity or mental health—or they might have truly exorbitant deductibles. Starting next year, insurers can’t sell new policies unless they meet Obamacare’s standards. That will tend to make insurance more expensive.

3. Another major goal of Obamacare is to make sure all people can get coverage at uniform prices, regardless of pre-existing conditions. This is known as “guaranteed issue” and “community rating.” Today insurers frequently charge higher premiums or deny coverage altogether to people with pre-existing conditions. This allows them to keep prices low for the young and the healthy. Obamacare will force insurers to abandon these practices. But if the old and the sick get to pay less, the young and the healthy will have to pay more.

4. Obamacare has already introduced some reforms to keep down the price of insurance. Some of these are designed to make medical care itself more efficient—in ways that, hopefully, will eventually reduce insurance premiums. Other reforms attempt to influence insurance prices directly, by, for example, limiting how much money insurers can siphon off for premiums and overhead. A study by the Kaiser Family Foundation suggested this provision, known as the "medical loss ratio" requirement, saved consumers about $2.1 billion in 2012.

5. Obamacare also has subsidies that offset premium increases for the majority of Americans. The value of the tax credits, which are financed by higher taxes on the wealthy and various cuts to government health care spending, varies depending on the incomes of the people receiving them. But in some cases they are worth several thousand dollars. That would be enough to wipe out any premium increases from the law’s new regulations. People making just a little above the poverty line will frequently have access to policies that cost less than $100 a month. Keep in mind that the tax credits are available upfront, when somebody buys insurance—so it’s really more like a discount on the sticker price than a tax benefit somebody collects later on.

6. Lots of people buying non-group insurance today will find they can get insurance for much, much less than they are paying today. Partly that’s because of the tax credits. But partly that’s because they’ll become eligible for Medicaid—at least in those states joining in the program’s expansion. Young adults, under the age of 26, also have the option of enrolling in their parents’ plans. And people younger than 30 will have access to special catastrophic plans that are even cheaper than other Obamacare insurance options, though they cover less.

7. These factors will mix together in different ways for different people, depending on income, place of residence, and so on. There’s lots of disagreement about how many people will pay more versus how many people will pay less. (The experts I trust most continue to say that, most likely, the majority of people will end up paying less.) But even if those paying more are a relatively tiny percentage of the population overall, they will still be a large group in raw numbers. It’s a big country! That’s why there are so many of these stories circulating right now. Of course, even those people paying more for their coverage will be paying rates that are, for the most part, comparable to the cost of insurance that employers provide to employees. They'll also be getting a level of coverage and security the old non-group market usually did not provide.

Are these trade-offs worthwhile? Is it fair to make the young, healthy, and wealthy subsidize the old, sick, and non-wealthy? Those are obviously issues about which intelligent, honest people can disagree. And right now the only way to get those all-important tax credits is through the healthcare.gov website—or call centers and paper applications that ultimately rely on the same technology. The people who stand to benefit from this transition don’t know it yet, because they aren’t able to log on and see how much they’ll save. That’s a big reason the stories of rate hikes are getting so much attention—and one more reason the federal governmetn needs to fix its website soon.