One of the most serious flaws with is that its blizzard of regulations and mandates drives up the cost of insurance for people who buy it on their own. This problem will be especially acute when the law’s main provisions kick in on January 1, 2014, leading many to worry about health insurance “rate shock.”
Last week, the state of California claimed that its version of Obamacare’s health insurance exchange would actually reduce premiums. “These rates are way below the worst-case gloom-and-doom scenarios we have heard,” boasted Peter Lee, executive director of the California exchange.
But the data that Lee released tells a different story: , in fact, will increase individual-market premiums in California by as much as 146 percent.Then there's an interesting exchange between the author and critics of his analysis.
Lee’s claims that there won’t be rate shock in California were repeated uncritically in some quarters. “Despite the political naysayers,” writes my Forbes colleague Rick , “the exchange concept appears to be working very well indeed in states like California.” A bit more analysis would have prevented Rick from falling for California’s sleight-of-hand.
Here’s what happened. Last week, Covered California—the name for the state’s -compatible insurance exchange—released the rates that Californians will have to pay to enroll in the exchange.
“The rates submitted to Covered California for the 2014 individual market,” the state said in a press release, “ranged from two percent above to 29 percent below the 2013 average premium for small employer plans in California’s most populous regions.”
That’s the sentence that led to all of the triumphant commentary from the left. “This is a home run for consumers in every region of California,” exulted Peter Lee.
Except that Lee was making a misleading comparison. He was comparing apples—the plans that Californians buy today for themselves in a robust individual market—and oranges—the highly regulated plans that small employers purchase for their workers as a group. The difference is critical.
to double individual-market premiums
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 (NASDAQ: .com), the average cost of the five cheapest plans was only $92. In other words, for the average 25-year-old male non-smoking Californian, will drive premiums up by between 100 and 123 percent.
Under , 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 , the average cost of the five cheapest plans was $121. That is, will increase individual-market premiums by an average of 116 percent.
UPDATE 1: On Twitter, Jonathan argues that I’m being unkind to California (1) by not describing the mandates that imposes on insurers in the individual market, and (2) not explaining that low-income people will be eligible for subsidies that protect them from much of the rate shock. of The New Republic
For an extensive discussion of Obamacare’s costly insurance mandates, such as its requirement that plans cover you whether you’re healthy or sick, read this post. For a discussion of how Obamacare’s insurance mandates dramatically increase the cost of insurance for younger workers, go here.
Jon is right that low-income individuals will be protected from these rate increases because of Obamacare’s subsidies, but if you’re not low-income, you face a double-whammy: higher taxes to pay for those subsidies, and higher better approach would be to offer everyone access to low-cost consumer-driven health coverage.-market insurance costs for yourself. A
UPDATE 2: A number of writers did call out California for the apples-to-oranges comparison last week, including David , Philip Klein, and . Chen
, writing in View, does the useful exercise of showing that even for plans with the same generous benefit package that requires, is significantly cheaper:
To put it simply: Covered California is trying to make consumers think they’re getting more for less when, in fact, they’re just getting the same while paying more.I think the last comment summaries it best.
Yet there are many plans on the individual market in California today that offer a structure and benefits that are almost identical to those that will be available on the state’s health insurance exchange next year. So, let’s make an actual apples-to-apples comparison for the hypothetical 25-year-old male living in San Francisco and making more than $46,000 a year. Today, he can buy a plan from a major insurer with a $5,000 deductible, 30 percent coinsurance, a $10 co-pay for generic prescription drugs, and a $7,000 out-of-pocket maximum for $177 a month.
According to Covered California, a “Bronze” plan from the exchange with nearly the same benefits, including a slightly lower out-of-pocket maximum of $6,350, will cost him between $245 and $270 a month. That’s anywhere from 38 percent to 53 percent more than he’ll have to pay this year for comparable coverage! Sounds a lot different than the possible 29 percent “decrease” touted by Covered California in their faulty comparison.
While Covered California acknowledges that it’s tough to compare premiums - and post- , at the very least, it could have made a legitimate comparison so consumers could fairly evaluate the impacts of .
"To put it simply: Covered California is trying to make consumers think they’re getting more for less when, in fact, they’re just getting the same while paying more."
Obamacare advocates are fine with driving up the cost of individual premium policies because it will force people into the one size fits all approach.
What his analysis leaves out is those who believe the state can best allocate health care resources have the emotional satisfaction of imposing their ideological worldview on the rest of society.