Yesterday, the Obama administration admitted that health insurance premiums under the Affordable Care Act are set to rise dramatically this coming year. On average, the middle tier of coverage options on which the law's subsidies are based will rise by about 25 percent. That's not just a big increase on its own. It's a far larger hike than we've seen previously: Last year, mid-level plans increased by about 7.5 percent.
In other words, this isn't business as usual. And while the premium increases will vary by region, it's not limited to a few select states or counties. In addition, thanks to the exit of multiple major insurers from the law's exchanges, anyone seeking coverage under the law next year will have fewer choices.
Obamacare is facing sharply rising premiums and reduced choice, and while this is not a huge surprise–analysts have been predicting rate increases along these lines for much of the year—the news contributes to an overall picture of a law that is struggling to overcome serious challenges to its viability.
As these challenges have become more apparent, the Obama administration, along with other defenders of the law, has attempted to downplay or excuse the law's problems. But the various defenses that the administration has recently offered come across more like excuses than explanations—and weak excuses at that.
For one, the administration has noted that the premium hikes won't significantly affect the majority of the people who get coverage under the law, because the subsidies will rise too. "We think they will ultimately be surprised by the affordability of the premiums, because the tax credits track with the increases in premiums," one Health and Human Services (HHS) official told NPR.
Under the health law, subsidies are pegged to what's known as a "benchmark" plan—the second lowest-cost option in the middle, or silver, tier of coverage offered under the law. Because subsidies will rise with premiums, about three quarters of the people who purchase coverage through the exchanges will be relatively insulated from the price increase.
What this means, though, is that the government will be paying for subsidies, and so the total cost of the law to the public will go up. In addition, many of those who are insulated from the premium hikes will still lose their insurance plans as insurers drop out of the market, and may end up picking a new plan that doesn't cover their current set of health providers.
This also does nothing for the people who are not subsidized under the law—in particular, the individuals who are just above the subsidy cutoff of 400 percent of the poverty line. That's who Bill Clinton was talking about when he complained recently that Obamacare is a "crazy scheme" that "doesn't make sense." Those people will bear the full brunt of the premium hikes themselves—or choose to remain uninsured and pay a penalty.
Finally, the subsidies won't insulate individuals from hikes forever, as subsidy caps that will require consumers to pay a greater share of their income kick in starting in 2019.
Which brings us to the administration's next excuse, which is to dismiss the idea that this will be a long-term problem, however, by declaring that this is a one-time correction, or, as HHS Secretary Sylvia Burwell said recently in an op-ed about Obamacare's "growing pains," the health law is merely entering a "transition year."
The administration's euphemistic hopefulness aside, there are several good reasons to worry that this won't be an isolated event. Obamacare's fundamental problem is that too few people have signed up, and in particular that too few healthy people have signed up. Exchange enrollment last year came in about 40 percent below the Congressional Budget Office's initial predictions.
But with premiums going up so much, healthier people—especially healthier people who don't qualify for subsidies—are even more likely to go without coverage. And the subsidy caps mean that in a few years, even the less well off will no longer be quite as insulated from hikes. Even before yesterday's announcement, independent analysts were already predicting that enrollment would be flat this year. It's unlikely that this will be a one-off correction if enrollment stagnates.
Another argument that the administration has put forth recently is that, in fact, most people are experiencing savings because of it. This is not necessarily linked directly to the premium hikes in the exchanges, but it tends to arise in its defenses of the law. For example, in a speech focused on Obamacare last week, President Obama argued that the law "slowed down the pace of health care inflation," and so, "in fact, if your family gets insurance through your job, your family is paying, on average, about $3,600 less per year than you would be if the cost trends that had existed before the law were passed had continued. Think about that. That's money in your pocket."
As Obama notes, that figure accounts only for people with job-based insurance—so that particular calculation, at least, does not account for people who get their coverage through Obamacare's exchanges. There are other problems with this argument: The first is that it's not actually clear that the law is responsible for slowing the pace of medical inflation, which was generally on a downward trajectory before the law passed. Obamacare may be having a large effect, a small effect, or none at all. Obama gives it all the credit.
In any case, when Obamacare talks about "money in your pocket," what Obama is really talking about is not savings, in the way that most people understand it—which is when you spend less. Instead, he is describing savings versus a counterfactual, in which you spend more, but the amount of increase is lower than it might have been in some hypothetical parallel universe. It is policy justification by alternate history science fiction—a fiction informed, yes, by plausible speculation based on certain trends, but one that, so far as anyone reading this knows, never came to be. No one has truly saved this money; it is entirely hypothetical. Perhaps there is some alternate timeline in which most people are indeed spending much more on their insurance, but in our particular strand of the universe, the fact is that most people are spending more on their health insurance premiums, not less.
Finally, the health law's defenders have attempted to separate it from the larger context of non-Obamacare health coverage. Near the beginning of his speech last week, President Obama said, "Let's start with a basic fact. The majority of Americans do not—let me repeat—do not get health care through the Affordable Care Act." Instead, he explained, most people get coverage through employers, or other government programs like Medicare.
This is true, of course, and also a somewhat odd way to frame a defense of the health law, as it appears intended to minimize the scale of its impact, or at least cordon it off from public skepticism.
It is also largely beside the point: When assessing the success of Obamacare, the important question is what is happening to people covered by Obamacare. And what this week's news makes clear is that premiums are going up, and the number of available plans is going down, and that, as a result, many middle-class people will face a choice between paying dramatically higher rates for their remaining choices, or paying a tax penalty for the privilege of remaining uninsured. For these people, I suspect, nothing the administration has said or done will be sufficient to excuse what Obamacare has become.