Obamacare

California Regulators Hide Obamacare Rate Shock With Misleading Comparison

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Photo credit: brianwallace / Foter.com / CC BY-NC

Do recently announced insurance rates for California's health exchange prove that worries about rate shock for health premiums are overblown? Not really. If anything, they suggest that concerns about big premium increases remain legitimate.

At the end of last year, California's health insurance regulators wrote a letter to Health and Human Services Secretary Kathleen Sebelius warning that state officials expected health insurance "rate shock as markets transition to [Obamacare's] rating rules."

But last week, after insurers participating in California's health insurance exchange announced  rates for the first year, supporters of the health care law were quick to declare that there was no rate shock to be found. "No 'rate shock' here," declared a Washington Post headline, noting that the premiums were lower on average than had been predicted for the state by consulting firm Milliman. The prices submitted by insurers, according to New York Times columnist Paul Krugman, were "surprisingly low." Peter Lee, the head of Covered California, the state's exchange, pushed a similar message of good news. "These rates are way below the worst-case gloom-and-doom scenarios we have heard," he told the L.A. Times.

Yet Lee also acknowledged that some consumers would still get hit by substantial premium hikes.  "Let's be clear, some consumers will have prices that go up," he said. "There may be some sticker shock."

In a press release, Covered California attempted to put a figure on the damage: "The rates submitted to Covered California for the 2014 individual market ranged from two percent above to 29 percent below the 2013 average premium for small employer plans in California's most populous regions."

So this is the supposed good news about Obamacare health premiums, as presented by its supporters: that prices will go up less than some predicted, and perhaps go down in some cases, but still enough that the state's chief exchange official felt the need to warn of "sticker shock" for some. 

But this good news is not as good as it might sound, because it's based on a misleading comparison: next year's individual market rates with this year's small-employer plans. A more useful comparison would be with this year's individual-market premiums. And what that comparison reveals is that rate shock is real, and that the hikes are far larger than the comparison with small-group rates would suggest.

As the L.A. Times noted last week, "The average premium for individual plans sold through EHealthInsurance in California last year was $177 a month. Covered California said the average premium for the three lowest Silver plans statewide was $321 a month, albeit for more comprehensive benefits." That's a pretty big hike. 

Over at Forbes, Avik Roy offers a more thorough comparison of current eHealthInsurance.com rates in California to next year's exchange premiums in the state.

If you're a 25 year old male non-smoker, buying insurance for yourself, the cheapest plan on Obamacare's exchanges is the catastrophic plan, which costs an average of $184 a month. (That's the median monthly premium across California's 19 insurance rating regions.)

The next cheapest plan, the "bronze" comprehensive plan, costs $205 a month. But in 2013, on eHealthInsurance.com (NASDAQ:EHTH), the average cost of the five cheapest plans was only $92. In other words, for the average 25-year-old male non-smoking Californian, Obamacare will drive premiums up by between 100 and 123 percent.

Under Obamacare, only people under the age of 30 can participate in the slightly cheaper catastrophic plan. So if you're 40, your cheapest option is the bronze plan. In California, the median price of a bronze plan for a 40-year-old male non-smoker will be $261. But on eHealthInsurance, the average cost of the five cheapest plans was $121. That is, Obamacare will increase individual-market premiums by an average of 116 percent.

Individual market rates doubling in the space of a year year? That sounds an awful lot like rate shock to me.

Of course, as the L.A. Times noted, there's a trade-off here: The coverage through the exchange is generally more comprehensive—and, as a result, also more expensive.

Obamacare's defenders seem to think it's a worthwhile trade-off. Yes, individual market consumers will be paying more than they might today, but insurers will have to sell policies to everyone, will be limited in how they can price based on health history, and will have to include a variety of essential benefits in the process.

Lower-income individuals, meanwhile, will be insulated from the full impact of those new rates thanks to the law's premium subsidies. Yet as health policy consultant Robert Laszewski points out, what that really means is that a big chunk of Obamacare's cost increases will fall on taxpayers. (And remember, an estimated 40 percent of people buying insurance through the exchanges won't get subsidies.)

There are other trade-offs too: As Laszewski also points out, health insurers are attempting to mitigate the costs imposed by the benefit requirements by offering narrow-network plans that limit the scope of providers covered. There's nothing wrong with those sorts of offerings, if insurers want to sell them and consumers want to buy them, but what Obamacare appears to be doing is giving both consumers and insurers a rather big push toward those sorts of provider-limited plans. Essentially, it's making the choice for them.

Fundamentally, that's a big part of what Obamacare is about: making choices for individuals, for businesses, and for the health care sector. And so under Obamacare we'll probably get more coverage (though perhaps not as much as supporters hope, especially at first), more insurance benefits (at least on paper), and (at least in theory) more accessible coverage. But don't be fooled into thinking it won't come without higher costs—for individuals, for businesses, and for the public. Obamacare both makes those choices and expects people to pay for them. 

This post has been corrected; a statement indicating that individual market premiums might rise by 29% has been removed. 

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  1. I don’t remember reading anywhere how the subsidies are doled out. Is it a lump sum that goes to the insurance company or the individual? If the latter, what stops the person from using this money for something other insurance?

    Or if a person is unemployed for two months so gets the subsidies, and then later starts making enough to not receive them, – do they essentially get free $$$ for that year?

    Or the same thing in reverse – you are dropped from your job (or if self-employed) not enough money comes in to pay for the insurance, do you pay the penalties?

    clusterfuck of bureaucracy comes to mind.

    1. I’m sorry, but this article itself is misleading.

      Nowhere in this article is the mention of Advance Premium Tax Credits, in which the Fed will subsidize the cost of healthcare for individuals who get insurance on the state exchanges.

      So sure, rates will increase by default, because rates on the exchange will have to be good for the whole year instead of the quarterly increases we see now. Also, the law mandates a certain level of coverage from carriers, so if some plans don’t cover what the law requires, it’s obvious the rates will go up to reflect the costs of services covered.

      A true comparison would be what an individual is paying now by averaging the total yearly premium cost, and compare that with a comparable plan on the exchange, and then factor in the APTC subsidy they will receive, and then find out what the actual cost to that individual will be on a yearly basis.

      This approach requires determining income and seeing what one is eligible for, but also we have to consider that we are still a few months out from October, and rates could drop even further as carriers compete with each other on upcoming public exchanges. Rates now are usually discerned by dealing with one carrier directly or getting a broker to compare more than one plan or carrier…but once the public can go to a website and look, i.e. higher visibility, it may drive rates down due to competition by the carriers to get these mandated individuals’ business.

      1. So while the article cites a bad comparison, the author himself uses a bad comparison and doesn’t see the whole picture and how this all shakes out. Rates will probably always go up, but total cost to the consumer will be another question altogether. Rates aren’t going to be a direct translation to costs in 2014, not for anyone receiving a subsidy like individuals, sole proprietors, or businesses with less than 25 full time equivalents.

        1. “Rates aren’t going to be a direct translation to costs in 2014, not for anyone receiving a subsidy like individuals, sole proprietors, or businesses with less than 25 full time equivalents.”

          So, free shit because the ‘government is paying for it’?
          I hope you realize that line of bullshit doesn’t fly with reasonoids.

      2. You write as if you know something about the industry. And yet you have so much wrong.

        First, and easiest, is your notion that “.but once the public can go to a website and look, i.e. higher visibility, it may drive rates down due to competition by the carriers” ignores the fact that you can do this today. In fact many do. It is even a major feature of the article – citing a rate comparison from eHealthinsurance.com. Since most people get insurance through their employer, perhaps you weren’t aware, but there are plenty of resources for this type of comparison, including a traditional broker.

        The article also directly addresses your point about subsidies at some length. While some voters might be shielded from seeing the true cost of their health insurance due to subsidies, that doesn’t mean the costs aren’t there. They will just be born by other taxpayers, making their “sticker shock” even worse than advertised (albeit buried inside an increased deficit).

        The notion that quarterly increases vs annual increases plays a role in the magnitude of the increase this year is a little silly. Here in Florida you sign up for an annual contracted price on an individual plan, so it isn’t even relevant in every jurisdiction. And my agent here recently went to training on the new plans and reports that rates will be about double next year. Remember how everyone was howling about the outrageous 7% annual inflation of healthcare costs? Yeah, that seems kinda quaint now.

  2. The next cheapest plan, the “bronze” comprehensive plan, costs $205 a month. But in 2013, on eHealthInsurance.com (NASDAQ:EHTH), the average cost of the five cheapest plans was only $92. In other words, for the average 25-year-old male non-smoking Californian, Obamacare will drive premiums up by between 100 and 123 percent.

    This makes me want to go find some California 20-somethings that were gung-ho for Obama and mercilessly mock them.

    1. you wrongly assume that they will even get it. They will buy the propaganda that it is the evil private companies stiffing them, and not the assholes in government, and you will be left wondering how much deeper the stupidity goes…

  3. But it’s helping the poor! By spending $2460 a year on health insurance in 2014 instead of $1104 in 2013, the average poor slob will have $1356 less every year to spend at McDonald’s.

    1. Thus making them healthier and then use less healthcare, thus lower costs for everyone!

      1. Stop giving them ideas for their binder!

  4. only people under the age of 30 can participate in the slightly cheaper catastrophic plan

    In other words, Obamacare further entrenches the third party payment model of insurance. That’s all you need to know about why this will be a complete failure at lowering healthcare costs.

    1. I want to know how catastrophic it actually is. My understanding was that catastrophic plans did not fulfill the requirements for “real” insurance under PPACA, and I didn’t know there was an age limit on that.

      1. Yes, I’m sure their definition of catastrophic is still thoroughly idiotic.

        1. When I was on the individual market, I had a catastrophic plan and it was the greatest thing ever. I’ve been talking them up for years. I’m probably more angry that PPACA will destroy the catastrophic insurance market than I am that it forces everyone to buy insurance. I mean not that the latter isn’t horrible, but the third-party-payment model is completely fucking us all.

          1. For some reason, I really feel that we’re on the cusp of seeing a lot of doctors move to cash-only practices. I hope I’m right.

            1. Which will almost certainly guarantee the practice being audited.

              1. Or banned by the people that want to implode the healthcare system and get us all on a government controlled single payer system. That still remains the end goal of all this crap.

            2. The only problem with that is, what happens when doctors move cash-only at the very time when all their customers are forced to buy insurance? I mean, it was bad enough when most people just got it through their employers, but you’re going to have even more people saying, “Why would I pay cash, that’s what I have insurance for.”

              I don’t know. There’s certainly the possibility that people who have doctors they like will find their doctors switching to a concierge or cash-only practice and they will follow, submitting claims themselves or whatever. But things that would have made practices like that easier, like FSAs and HSAs, are going to be disappearing, while insurance will be expanding. It’s a mess.

              1. OTOH, if enough pissed off voter say “why should I have to have insurance when the only docs I can actually see refuse to take it” then we’re getting somewhere. Right? I mean, surely some friendly circuit court wouldn’t find it discriminatory to refuse insurance… Right?

                1. OTOH, if enough pissed off voter say “why should I have to have insurance when the only docs I can actually see refuse to take it” then we’re getting somewhere. Right? I mean, surely some friendly circuit court wouldn’t find it discriminatory to refuse insurance… Right?

                  That’s when doctors will be drafted and states will be required to make doctors accept insurance or revoke licenses. Since practicing medicine without a license is a crime, I see this going much the other direction.

                  We are witnessing the preamble to the Sovietization of America.

              2. The only problem with that is, what happens when doctors move cash-only at the very time when all their customers are forced to buy insurance?

                You’ll probably see a switch to HDHPs with an HSA, where the person goes to the cash doctor, pays the bill, and then gets reimbursed from the HSA (or pays with the HSA credit card).

  5. “The rates submitted to Covered California for the 2014 individual market ranged from two percent above to 29 percent below the 2013 average premium for small employer plans in California’s most populous regions.”

    So this is the supposed good news about Obamacare health premiums, as presented by its supporters: that prices will go up by as much as 29 percent

    Is this wrong or am I reading it incorrectly?

    1. I think it’s wrong–I don’t think they’re saying anything to the effect of prices going up by 29%, just that individual plans will continue to be cheaper than most small employer plans.

    2. It’s wrong. I think Mr. Suderman misread it, as it’s normal for people to present a range from lowest to highest. In this case, it was presented the other way. It’s essentially from +2 to -29 percent; it was misread as from +2 to +29 percent.

      1. Yes, my error, will post a correction shortly.

    3. I was going to comment on this too. I think the author made a mistake. :/

    4. Correcting this now.

  6. Please don’t associate my favorite In N Out Burger (Westchester/LAX) with this mess!

    1. Those are good burgers, dude.

      1. Too bad the fries suck.

        1. No kidding! I ate there a few weeks ago and wow, those are cruddy fries compared to nearly any other fast food joint.

        2. Their fries are made with a unique ingredient in the fast food business: actual potatoes.

          AND THEY ARE DELICIOUS!

          1. Sure, if you consider limp, greasy lumps of potato to be a delicacy.

            1. NO SOUP FOR YOU!!!

            2. Online research indicates that one can request them “well done,” which supposedly helps.

  7. “No ‘rate shock’ here,” declared a Washington Post headline

    Here’s a more accurate headline:

    “California health insurance regulators lie”

    …with subhead:

    “Compare individual rates to group rates, implicitly admit small employers will end coverage”

  8. [“No ‘rate shock’ here,” declared a Washington Post headline, noting that the premiums were lower on average than had been predicted for the state by consulting firm Milliman.]

    Here we go again. “Your health insurance cost will double, but that’s less than the predicted quadrupling, so you should feel good about it.”

    Just like “government budget slashed” = “We didn’t get as big an increase as we wanted.”

    1. I also like the attitude toward extra coverage. “Sure, we are doubling your rent, but your kitchen will be getting a quesadilla maker, a banana slicer, and a set of asparagus peelers that you didn’t ask for and don’t want.”

  9. “Under Obamacare, only people under the age of 30 can participate in the slightly cheaper catastrophic plan.”

    How is that not a violation of equal protection under the law? I can understand rates being higher for older people, but what type of coverage they can purchase? No fucking way that’s legal.

    1. “No fucking way that’s legal.”

      (Uses Darth Sidious voice) I will MAKE IT legal!

  10. Judge Jim Gray’s thoughts on Obamacare. From his TFL (The Functional Libertarian) Series on the Life & Liberty Magazine: http://www.davidhousholder.com…..-jim-gray/

    Follow me on Twitter http://twitter.com/libertyhous

  11. You miss another important point: There are benefit-enhancement subsidies as well. Obamacare supporters say that the subsidized plans are only the “silver plan”, but then they redefine the silver plan upwards for lower-income people, so that some folks get the “platinum” plan for token amounts, regardless of health or age.

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