Don’t Be Fooled By California’s Premium Claims

As I wrote earlier, California is going to be a major test case for the implementation of President Obama’s health care law. Though major insurers have decided to opt out of the state’s subsidized insurance exchange, the authority tasked with managing the program is now touting number of choices it is bringing Californians at a competitive cost.

“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,” Covered California, the entity running the exchange, announced in a press release. But the suggestion that, at worst, premiums will be rising 2 percent, and at best, falling 29 percent, is misleading.

Earlier in the press release, Covered California explains:

It is difficult to make a direct comparison of these rates to existing premiums in the commercial individual market because in 2014, there will be new standard benefit designs under the Affordable Care Act, and the actual change in an individual’s premium will depend on the person’s current insurance coverage.

What this means is that the federal government is now requiring all individuals to carry insurance policies that offer a slew of benefits dictated by the secretary of Health and Human Services, regardless of whether they would prefer to purchase policies with lower premiums and fewer benefits — or to go without insurance altogether. California, essentially, is saying that the exchanges will give participants more benefits for their money so the cost of the new offerings should be compared to more comprehensive plans. But what if individuals don’t want more coverage? For many young and healthy individuals, insurance on the exchanges will be a much more costly option than what they have now.

In 2012, the average individual insurance plan cost Californians $177 per month, according to online insurance marketplace ehealthinsurance.com. Yet the report put out by Covered California lists the average “silver” plan on the exchange as costing individuals $321 per month. That’s an 80 percent increase — or even more for those who still have the freedom to go without insurance and currently pay $0 in premiums. That freedom will disappear come January.

In 2014, the penalty for not purchasing an insurance policy that meets HHS standards is $95, or possibly a few hundred dollars, depending on taxable income. Either way, for individuals who do not qualify for generous subsidies, the mandate penalty will be a lot lower than the thousands of dollars it would cost to maintain HHS-acceptable insurance for the year. One of the key questions determining the fate of Obamacare will be whether young and healthy individuals decide to actually purchase insurance, which is necessary to offset the costs of forcing insurers to cover older and sicker individuals and those with pre-existing conditions. If there aren’t low-cost options available to entice the young and healthy crowd, Obamacare is going to run into a lot of problems.

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American Action Forum Survey Of Insurance Companies Warns Of 2014 Premium Sticker Shock

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WASHIGNTON – A new survey of major health care insurers, representing the vast majority of covered individuals in the U.S., conducted by the American Action Forum (AAF) answers the question: what impact will the Affordable Care Act (ACA) have on premiums in 2014? This survey aimed to illustrate real cases in a variety of regulatory environments, representing the spectrum of rate changes cross any given geographic area, rather merely average changes across demographics.

The findings highlight the sticker shock in health care premiums that awaits the relatively young and healthy in both the small group and individual markets as the ACA is fully implemented. The survey finds cost of premiums for this group will increase by an average of 169 percent. Conversely, the survey found that the premiums of older and sicker individuals in these markets will be relatively subsidized by the ACA, with that group seeing an average decrease in premium costs of just under 25 percent.

Summary Table: Average Premium Impacts for Individual and Small Group in 2014

Younger and Healthier Individuals and Small Employers

Older and Less Healthy Individuals and Small Employers

Note: Changes due to insurance market reforms alone and do not include annual medical trend increases.  It also does not include the fact that some individuals and small employers experiencing these changes will be eligible for taxpayer subsidies through insurance exchanges.

Read the complete results and survey methodology here.

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Don’t Believe The Media Hype: Obamacare Is Not Responsible For Double Digit Premium Hikes

Small businesses and individual health policy holders could face dramatic premium spikes this year, as some insurers file double digit increases and attribute the changes to the Affordable Care Act. The sticker shock is mostly the result of rising health care costs — and the prevalence of sicker beneficiaries in health insurance risk pools. The media, however, is blaming health care reform.

For instance, Friday’s Politico reported that premiums are increasing across the country as “All those new consumer benefits packed into the health reform law — birth control without a co-pay, free preventive care and limits on when insurers can turn down a customer — had to be paid for somehow.” Policy holders may experience 10 to 20 percent rate hikes, it warns, as insurers are “working the health reform law’s 2014 fees into their 2013 bills.”

So how much is Obamacare responsible for? Five, maybe eight percent? The answer is less than two.

Insurers are arguing that the costs of Obamacare’s annual fee on the industry, its requirement that companies contribute to a reinsurance program, and new benefits and regulations have to be passed down to consumers. “There’s a massive new health insurance tax that starts in 2014,” Robert Zirkelbach, the spokesman for America’s Health Insurance Plans told Politico. “For policies that are sold in 2013 and extend into next year, there’s going to be taxes imposed. … As a result, like all taxes, they will be reflected in premiums charged.”

There are new costs in 2014, but they have little to do with reform. Consider the insurers’ own rate justification filings, in which companies have to substantiate the raises. Aetna in Pennsylvania, for instance, seeks to increase rates by an average of 16.49 percent, but as it explains in its filing, 63.18 percent of the increase is attributed to the “cost of providing healthcare services to policyholders.” The Affordable Care Act is responsible for a tiny portion of the increase:

Impact of New Taxes and Fees

The Affordable Care Act (ACA) includes several new taxes and fees payable in 2014, including two that specifically apply to insured products — the health insurer fee and the reinsurance contribution. These new fees result in additional costs and are reflected in our updated rates for policies that extend into 2014. The overall impact of these costs on this filing is as follows:
* Health Insurer Fee: 1.0%
* Reinsurance Contribution: 0.5%

Washington & Lee Law School professor Timothy Jost predicted that “insurers in the individual market will benefit substantially from reinsurance payments” and will be “spared some administrative costs-notably the cost of underwriting which should be quite substantial.” ” The cost of new benefits should not be a big deal,” he continued, since “most of the costs of health insurance are for inpatient, outpatient, physician, lab, radiology, and pharmaceuticals, which virtually all insurers now cover.”

“I suspect that what is going on is a combination of legitimate concern about new costs, overestimation of what those costs will be and underestimation of offsetting savings, taking a chance to attack the ACA, and grabbing the opportunity to make some profit,” Jost added.

The Affordable Care Act reforms the individual health care market and allows businesses and individuals to take advantage of large risk pools by purchasing coverage through state-based health care exchanges. Over time, insurers will see an influx of new customers, many of whom will benefit from the law’s tax credits and will see their health care bills decrease.

In the short term, however, regulators must remain vigilant. As Sarah Lueck, of the Center for Budget and Policy Priorities (CBPP), told ThinkProgress, “The question of whether these increases are justified is something that regulators should closely scrutinize.”

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