Obamacare's Rate Shock Hits The Buckeye State

Ohio Department of Insurance officials announced last week that average premiums in the Buckeye state would soar 88 percent once President Obama's health care law kicks in. (Photo: Thinkstock)

Ohio Department of Insurance officials announced last week that average premiums in the Buckeye state would soar 88 percent once President Obama's health care law kicks in. The news added fuel to an already raging debate over Obamacare's effect on insurance costs.

Ohio's insurance department disclosed that a total of 14 insurance companies had proposed rates on 214 plans to be offered through the federally run insurance exchange set to open on Oct. 1 and begin providing benefits in January.

"The department's initial analysis of the proposed rates show consumers will have fewer choices and pay much higher premiums for their health insurance starting in 2014," said Ohio's Lt. Gov. Mary Taylor. Specifically, the study showed that the average monthly cost of insurance would rise from $223 to $420.

Supporters of Obamacare were quick to dismiss the news, noting that Taylor was a Republican and arguing that the study was misleading. The New Republic's Jonathan Cohn, one of the most prolific defenders of the health care law, insisted that it wasn't fair to compare average premiums, because that doesn't account for differences in the quality of the plans.

For instance, he described that under the current system, one of the cheapest bare bones plans in Ohio costs just $29 per month, but could stick enrollees with annual out of pocket expenses as high as $25,000. Under Obamacare, out of pocket costs are capped at $6,350 for the cheapest "bronze" level plan.

But in his analysis, Cohn is doing what he often accuses critics of Obamacare of doing -- cherry-picking a plan that results in the most outrageous number to demonstrate a point -- in this case, $25,000 out of pocket costs. But even if we give up the idea of comparing average premiums, the announced Ohio rates don't present a pretty picture for Obamacare.

Ohio regulators also announced that, "Projected costs from the companies for providing coverage for the required essential health benefits ranged from $282.51 to $577.40 for individual health insurance plans." That means that the cheapest plan available under Obamacare in Ohio will be $282.51.

But according to a search of eHealthInsurance.com, a 26 year-old living in Cleveland, Ohio, could currently purchase an Anthem SmartSense Plus plan for $89.45 per month. That's less than a third of the cost of the lowest Obamacare rate, as reported by Ohio regulators, and the annual out of pocket expenses for the Anthem plan are $6,000 -- which is less than Obamacare's bronze option.

In fact, under the current system, the same hypothetical 26 year-old could purchase a Medical Mutual plan with a $2,500 annual out of pocket limit, for $188.41 per month -- still significantly cheaper than the least expensive Obamacare option.

Obamacare naturally drives up the cost of insurance because it requires insurers to cover those with pre-existing conditions and mandates that insurers offer a wide array of benefits, whether or not consumers want them. It also institutes a tax on health insurance.

To his credit, Cohn eventually acknowledges that, "Obamacare's requirements really will make insurance more expensive relative to what it would cost otherwise" meaning that some people will end up paying more.

In general, if the law works as intended, older and sicker Americans who qualify for subsidies will find it easier to obtain affordable health coverage, but younger Americans with lower health care costs who do not qualify for subsidies will end up paying more.

Through the individual mandate, the federal government is hoping to coax enough healthy Americans into buying much more insurance than they're likely to need, thus providing a windfall of profits to private insurers, who can then afford to cover sicker Americans.

Philip Klein (pklein@washingtonexaminer.com) is a senior editorial writer for The Washington Examiner. Follow him on Twitter at @philipaklein.

View the original article here

The Coming ObamaCare Shock

In recent weeks, there have been increasing expressions of concern from surprising quarters about the implementation of ObamaCare. Montana Sen. Max Baucus, a Democrat, called it a "train wreck." A Democratic colleague, West Virginia's Sen. Jay Rockefeller, described the massive Affordable Care Act as "beyond comprehension." Henry Chao, the government's chief technical officer in charge of putting in place the insurance exchanges mandated by the law, was quoted in the Congressional Quarterly as saying "I'm pretty nervous . . . Let's just make sure it's not a third-world experience."

These individuals are worried for good reason. The unpopular health-care law's rollout is going to be rough. It will also administer several price (and other) shocks to tens of millions of Americans.

Start with people who have individual and small-group health insurance. These policies are most affected by ObamaCare's community-rating regulations, which require insurers to accept everyone but limit or ban them from varying premiums based on age or health. The law also mandates "essential" benefits that are far more generous than those currently offered.

According to consultants from Oliver Wyman (who wrote on the issue in the January issue of Contingencies, the magazine of the American Academy of Actuaries), around six million of the 19 million people with individual health policies are going to have to pay more—and this even after accounting for the government subsidies offered under the law. For example, single adults age 21-29 earning 300% to 400% of the federal poverty level will be hit with an increase of 46% even after premium assistance from tax credits.

Determining the number of individuals who will be harmed by changes to the small-group insurance market is harder. According to the Medical Expenditure Panel Survey, conducted by the Department of Health and Human Services, around 30 million Americans work in firms with fewer than 50 employees, and so are potentially affected by the small-group "reforms" imposed by ObamaCare.

Around nine million of these people, plus six million family members, are covered by employers who do not self-insure. The premium increases for this group will be less on average than those for people in the individual market but will still be substantial. According to analyses conducted by the insurer WellPoint for 11 states, small-group premiums are expected to increase by 13%-23% on average.

This average masks big differences. While some firms (primarily those that employ older or sicker workers) will see premium decreases due to community rating, firms with younger, healthier workers will see very large increases: 89% in Missouri, 91% in Indiana and 101% in Nevada.

Because the government subsidies to purchasers of health insurance in the small-group market are significantly smaller than those in the individual market, I estimate that another 10 million people, the approximately two-thirds of the market that is low- or average-risk, will see higher insurance bills for 2014.

Higher premiums are just the beginning, because virtually all existing policies in the individual market and the vast majority in the small-group market do not cover all of the "essential" benefits mandated by the law. Policies without premium increases will have to change, probably by shifting to more restrictive networks of doctors and hospitals. Even if only one third of these policies are affected, this amounts to more than five million people.

In addition, according to Congressional Budget Office projections in July and September 2012, three million people will lose their insurance altogether in 2014 due to the law, and six million will have to pay the individual-mandate tax penalty in 2016 because they don't want or won't be able to afford coverage, even with the subsidies.

None of this counts the people whose employment opportunities will suffer because of disincentives under ObamaCare. Some, whose employers have to pay a tax penalty because their policies do not carry sufficiently generous insurance, will see their wages fall. Others will lose their jobs or see their hours reduced.

Anecdotal evidence already suggests that these disincentives will really matter in the job market, as full-time jobs are converted to part time. Why would employers do this? Because they aren't subject to a tax penalty for employees who work less than 30 hours per week.

There is some debate over how large these effects will be, and how long they will take to manifest. However, the Bureau of Labor Statistics reports on a category of workers who will almost surely be involuntarily underemployed as a result of health reform: the 10 million part-timers who now work 30-34 hours per week.

These workers are particularly vulnerable. Reducing their hours to 29 avoids the employer tax penalty, with relatively little disruption to the workplace. Fewer than one million of them, according to calculations based on the Medical Expenditure Panel Survey, get covered by ObamaCare-compliant insurance from their employer.

In total, it appears that there will be 30 million to 40 million people damaged in some fashion by the Affordable Care Act—more than one in 10 Americans. When that reality becomes clearer, the law is going to start losing its friends in the media, who are inclined to support the president and his initiatives. We'll hear about innocent victims who saw their premiums skyrocket, who were barred from seeing their usual doctor, who had their hours cut or lost their insurance entirely—all thanks to the faceless bureaucracy administering a federal law.

The allure of the David-versus-Goliath narrative is likely to prove irresistible to the media, raising the pressure on Washington to repeal or dramatically modify the law. With the implementation of ObamaCare beginning to take full force at the end of the year, there will be plenty of time before the 2014 midterm elections for Congress to consider its options.

For those like Health and Human Services Secretary Kathleen Sebelius, who told a gathering a few weeks ago at the Harvard School of Public Health that she has been "surprised" by the political wrangling caused so far by ObamaCare, there are likely to be plenty of surprises ahead.

Mr. Kessler is a professor of business and law at Stanford University and a senior fellow at the Hoover Institution.

A version of this article appeared April 30, 2013, on page A17 in the U.S. edition of The Wall Street Journal, with the headline: The Coming ObamaCare Shock.

View the original article here

Implementation of the Affordable Care Act––More Evidence That Rate Shock is Coming

The Society of Actuaries is out with another estimate of health insurance rate increases as a result of implementation of the Affordable Care Act ("Obamacare").

While there is a great deal of difference between states, they are estimating an average increase of 31.5% on account of the new underwriting reform and benefit expansion requirements of the health law:

These rate increase projections by the Society do not include the big jumps that are coming for younger people driven by the laws requirement that age bands be narrowed so that older people pay no more than three times the premiums of the youngest. The combination of these baseline increases will about double the cost of health insurance for those in their 20s and early 30s––and perhaps decrease costs for those in their late 50s and 60s––in the majority of states that haven't already narrowed these age-related costs.

On this blog back in December, I predicted the same thing given the industry conversations I was having with those inside the companies tasked with calculating the new rates:

On average, expect a 30% to 40% increase in the baseline cost of individual health insurance to account for the new premium taxes, reinsurance costs, benefit mandate increases, and underwriting reforms. Those increases can come in the form of outright price increases or bigger deductibles and co-pays. 

At that time, I also pointed out that such increases would be way more than was first estimated when the law passed the Congress:

In a November 2009 report, the CBO estimated that premiums in the individual market would increase 10% to 13% on account of the health insurance requirements in the ACA. In the under 50-employee small group market, the CBO estimated that premiums would increase by 1% to a decrease of just 2% compared to what they would have been without the ACA. All of these differences in premium would be before income based federal subsidies are applied to anyone's premiums.

Defenders of the Affordable Care Act, including the administration, have been quick to point out that these increases won't be felt by those receiving premium subsidies––likely 60% of consumers.

That is right.

But, most of the cost of the Affordable Care Act is the cost of the coming health insurance subsidies––the Medicaid expansion is the other big part. So the federal government, that will pay the excess premium on account of those getting subsidies, will feel the impact of these big rate increases. Santa Claus is not going to be paying these higher subsidized premiums––federal taxpayers will be. Given that the CBO initially said the increase would only be about a third of what is coming, I have to question the original cost estimate for the new law.

That said, the 40% of consumers who will not be eligible for subsides are going to see some very high prices. Existing individual and small group customers, particularly those not in "grandfathered" plans are going to be shocked by what will happen to their premiums come January 1 in the vast majority of states.

The law also allows insurers to surcharge smokers' premiums by another 50%.

It is interesting to watch the most strident of the new law's supporters trying to spin the growing and overwhelming evidence of what is coming. The spin ends on October 1 when the promised new health insurance exchanges are scheduled to launch with the new health insurance offerings and their prices.

Readers of this blog likely saw my other post this week calling attention to a survey of health insurance industry insiders working with the new exchanges exhibiting little confidence the exchanges will launch smoothly.

"Obamacare" supporters in denial had better get ready for reality.

This is all shaping up to be a tough launch.

I told them not to call if the Affordable Care Act.

Recent post:
Six Months to Go –– Will the Health Insurance Exchanges Be Ready on Time? Survey: Health Plan Execs Don't Think So

View the original article here

Implementation of the Affordable Care Act––More Evidence That Rate Shock is Coming

The Society of Actuaries is out with another estimate of health insurance rate increases as a result of implementation of the Affordable Care Act ("Obamacare").

While there is a great deal of difference between states, they are estimating an average increase of 31.5% on account of the new underwriting reform and benefit expansion requirements of the health law:

These rate increase projections by the Society do not include the big jumps that are coming for younger people driven by the laws requirement that age bands be narrowed so that older people pay no more than three times the premiums of the youngest. The combination of these baseline increases will about double the cost of health insurance for those in their 20s and early 30s––and perhaps decrease costs for those in their late 50s and 60s––in the majority of states that haven't already narrowed these age-related costs.

On this blog back in December, I predicted the same thing given the industry conversations I was having with those inside the companies tasked with calculating the new rates:

On average, expect a 30% to 40% increase in the baseline cost of individual health insurance to account for the new premium taxes, reinsurance costs, benefit mandate increases, and underwriting reforms. Those increases can come in the form of outright price increases or bigger deductibles and co-pays. 

At that time, I also pointed out that such increases would be way more than was first estimated when the law passed the Congress:

In a November 2009 report, the CBO estimated that premiums in the individual market would increase 10% to 13% on account of the health insurance requirements in the ACA. In the under 50-employee small group market, the CBO estimated that premiums would increase by 1% to a decrease of just 2% compared to what they would have been without the ACA. All of these differences in premium would be before income based federal subsidies are applied to anyone's premiums.

Defenders of the Affordable Care Act, including the administration, have been quick to point out that these increases won't be felt by those receiving premium subsidies––likely 60% of consumers.

That is right.

But, most of the cost of the Affordable Care Act is the cost of the coming health insurance subsidies––the Medicaid expansion is the other big part. So the federal government, that will pay the excess premium on account of those getting subsidies, will feel the impact of these big rate increases. Santa Claus is not going to be paying these higher subsidized premiums––federal taxpayers will be. Given that the CBO initially said the increase would only be about a third of what is coming, I have to question the original cost estimate for the new law.

That said, the 40% of consumers who will not be eligible for subsides are going to see some very high prices. Existing individual and small group customers, particularly those not in "grandfathered" plans are going to be shocked by what will happen to their premiums come January 1 in the vast majority of states.

The law also allows insurers to surcharge smokers' premiums by another 50%.

It is interesting to watch the most strident of the new law's supporters trying to spin the growing and overwhelming evidence of what is coming. The spin ends on October 1 when the promised new health insurance exchanges are scheduled to launch with the new health insurance offerings and their prices.

Readers of this blog likely saw my other post this week calling attention to a survey of health insurance industry insiders working with the new exchanges exhibiting little confidence the exchanges will launch smoothly.

"Obamacare" supporters in denial had better get ready for reality.

This is all shaping up to be a tough launch.

I told them not to call if the Affordable Care Act.

Recent post:
Six Months to Go –– Will the Health Insurance Exchanges Be Ready on Time? Survey: Health Plan Execs Don't Think So

View the original article here

Rate Shock in California!––The New Health Insurance Exchange Plans––Comparing Apples to Oranges to Grapefruit

I have to say I was surprised with the press reports last week that there wasn't "rate shock" in California when the California exchange offered preliminary information about their new plans and rates.

At least one prominent health actuarial group had predicted a 30% baseline increase in costs for California's new health insurance exchange plans under the Affordable Care Act (ObamaCare").

As the director of the California exchange put it, "These rates are way below the worst-case gloom-and-doom scenarios we have heard."

But a few days later there is lots more information coming out and it would appear we have a case of apples to oranges to grapefruit. And, we have a pretty good case of rate shock.

First, the exchange officials pointed out that we have to be careful to compare apples to apples when looking at 2013 rates and comparing them to the 2014 exchange rates because the 2014 exchange plans have far more generous benefits.

Yes we do, particularly when the California exchange forces us to give up our apple and buy a more expensive orange.

One of the reasons health insurance in the exchange will cost a lot more in most states is because the new health law outlaws many of the existing plans now being offered and requires only those much richer plans to be sold.

Are people going to get more coverage for their money? Yes. Do they want more coverage if the premium costs for those plans is a lot higher? Likely yes if taxpayers are paying for most of it. If not, clearly they didn't want to pay for it before. Come January, lots of California consumers in the small group and individual market are going to get a letter from their existing insurer telling them their current plan is no longer available and the cost of the new required plans will be a lot more.

Simply, the new law is taking plan design choices away instead of letting the consumer decide what is good for them. Does that matter in California?

As the LA Times reported, "The average premium for individual plans sold through EHealthInsurance in California was $177 per month last year. Covered California said the average premium for the three lowest Silver plans statewide will be $321 a month [+81% over two years], albeit for more comprehensive benefits."

For those insured right now, and the estimated 40% that won't be eligible for a federal premium subsidy, that sure looks like rate shock to me. For the 60% who will get a subsidy, this means the taxpayers are going to have to fork out lots more money.

Then one of the largest insurers in California, Blue Shield, announced that their average rate increase would be 13% under the new law. That sure looks better than the predicted 30% increase for California exchange plans.

But wait, that Blue Shield exchange plan in LA, for example, does not include UCLA Medical Center or Cedars Sinai. In fact, Shield's exchange network includes a total of only 24,000 physicians compared to 66,000 doctors in their full PPO network––only 36% of their usual network docs will be available.

Last week a national player told me there is a nationwide trend growing where the insurer offers a very limited list of providers exclusivity in their exchange plans for deeper payment discounts in the 30% range––the narrow network plan would be the health plan's only offering in the exchange. The tactic was described to me as a "quasi Medicaid strategy for the exchanges."

Health insurers have long struggled to keep premiums low by offering their customers lower benefit options at renewal. Apparently, with that option limited under the new health law, insurers are now sometimes opting to keep premiums lower by limiting provider options.

Let's be clear, "narrow network" plans that contract with fewer lower cost providers are a legitimate cost containment strategy. But Shield is only offering the narrow network in the exchange. While some health plans will sell their regular broader network outside the exchange, consumers can only get the federal premium subsidy inside the exchange. Looks like oranges to grapefruit to me.

The California exchange touted its announcement saying, "This is a home run for consumers in every region of California."

Let's see what California's individual and small group market consumers have to say once they start getting those renewal letters and go to the provider directory to see which doctors and hospitals they can go to.

An aside: I have to give LA Times reporter Chad Terhune lots of credit for staying with this story. During the past few days, he has written three articles (see links above). The first generally summarized the California Exchange press conference, the second dug a little deeper, and the third really got to the heart of the matter. In the end, LA readers got the whole story.

View the original article here

Rate Shock: In California, Obamacare to Increase Individual Health Insurance Premiums by 64-146%

Angela Braly, then-CEO of WellPoint, testified before Congress about allegations that its California unit, Anthem Blue Cross, was raising premiums on some customers by more than 30 percent. Last week, California announced that the Affordable Care Act would increase non-group insurance premiums by as much as 146 percent. (Image courtesy U.S. House of Representatives)

One of the most serious flaws with Obamacare 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: Obamacare, in fact, will increase individual-market premiums in California by as much as 146 percent.

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 Ungar, “the healthcare 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 Obamacare-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.

Obamacare 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 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.

For both 25-year-olds and 40-year-olds, then, Californians under Obamacare who buy insurance for themselves will see their insurance premiums double.

Impact highest in Bay Area, Orange County, and San Diego

In the map below, I illustrate the regional variations in Obamacare’s rate hikes. For each of the state’s 19 insurance regions, I compared the median price of the bronze plans offered on the exchange to the median price of the five cheapest plans on eHealthInsurance.com for the most populous zip code in that region. (eHealth offers more than 50 plans in the typical California zip code; focusing on the five cheapest is the fairest comparator to the exchanges, which typically offered three to six plans in each insurance rating region.)

As you can see, Obamacare’s impact on 40-year-olds is steepest in the San Francisco Bay area, especially in the counties north of San Francisco, like Marin, Napa, and Sonoma. Also hard-hit are Orange and San Diego counties.

According to Covered California, 13 carriers are participating in the state’s exchange, including Anthem Blue Cross (NYSE:WLP), Health Net (NYSE:HNT), Molina (NYSE:MOH), and Kaiser Permanente. So far, UnitedHealthCare (NYSE:UNH) and Aetna (NYSE:AET) have stayed out.

Spinning a public-relations disaster

It’s great that Covered California released this early the rates that insurers plan to charge on the exchange, as it gives us an early window into how the exchanges will work in a state that has an unusually competitive and inexpensive individual market for health insurance. But that’s the irony. The full rate report is subtitled “Making the Individual Market in California Affordable.” But Obamacare has actually doubled individual-market premiums in the Golden State.

How did Lee and his colleagues explain the sleight-of-hand they used to make it seem like they were bringing prices down, instead of up? “It is difficult to make a direct comparison of these rates to existing premiums in the commercial individual market,” Covered California explained in last week’s press release, “because in 2014, there will be new standard benefit designs under the Affordable Care Act.” That’s a polite way of saying that Obamacare’s mandates and regulations will drive up the cost of premiums in the individual market for health insurance.

But rather than acknowledge that truth, the agency decided to ignore it completely, instead comparing Obamacare-based insurance to a completely different type of insurance product, that bears no relevance to the actual costs that actual Californians face when they shop for coverage today. Peter Lee calls it a “home run.” It’s more like hitting into a triple play.

Obama attacked insurers in 2010 for much smaller increases

That Obamacare more than doubles insurance premiums for many Californians is especially ironic, given the political posturing of the President and his administration in 2010. In February of that year, Anthem Blue Cross announced that some groups (but not the majority) would face premium increases of as much as 39 percent. The White House and its allies in the blogosphere, cynically, claimed that these increases were due to greedy profiteering by the insurers, instead of changes in the underlying costs of the insured population.

“These extraordinary increases are up to 15 times faster than inflation and threaten to make health care unaffordable for hundreds of thousands of Californians, many of whom are already struggling to make ends meet in a difficult economy,” said Health and Human Services Secretary Kathleen Sebelius. “[Anthem’s] strong financial position makes these rate increases even more difficult to understand.” The then-Democratic Congress called hearings. Even California Insurance Commissioner Steve Poizner, a Republican running for governor, decided to launch an investigation.

Soon after, WellPoint announced that, in fact, because of lower revenues and higher spending on patient care, the company earned 11 percent less in 2010 than it did in 2009. So much for greedy profiteering.

So, to summarize: Supporters of Obamacare justified passage of the law because one insurer in California raised rates on some people by as much as 39 percent. But Obamacare itself more than doubles the cost of insurance on the individual market. I can understand why Democrats in California would want to mislead the public on this point. But journalists have a professional responsibility to check out the facts for themselves.

Follow @Avik on Twitter and Google+, and The Apothecary on Facebook. Sign up to receive a weekly e-mail digest of articles from The Apothecary.

UPDATE 1: On Twitter, Jonathan Cohn of The New Republic argues that I’m being unkind to California (1) by not describing the mandates that Obamacare 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.

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 indvidual-market insurance costs for yourself. A better approach would be to offer everyone access to low-cost consumer-driven health coverage.

UPDATE 2: A number of writers did call out California for the apples-to-oranges comparison last week, including David Freddoso, Philip Klein, and Lanhee Chen.

Lanhee, writing in Bloomberg View, does the useful exercise of showing that even for plans with the same generous benefit package that Obamacare requires, eHealthInsurance 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.

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 PPO 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 pre- and post-Obamacare, at the very least, it could have made a legitimate comparison so consumers could fairly evaluate the impacts of Obamacare.

View the original article here

The Coming ObamaCare Shock

In recent weeks, there have been increasing expressions of concern from surprising quarters about the implementation of ObamaCare. Montana Sen. Max Baucus, a Democrat, called it a "train wreck." A Democratic colleague, West Virginia's Sen. Jay Rockefeller, described the massive Affordable Care Act as "beyond comprehension." Henry Chao, the government's chief technical officer in charge of putting in place the insurance exchanges mandated by the law, was quoted in the Congressional Quarterly as saying "I'm pretty nervous . . . Let's just make sure it's not a third-world experience."

These individuals are worried for good reason. The unpopular health-care law's rollout is going to be rough. It will also administer several price (and other) shocks to tens of millions of Americans.

Start with people who have individual and small-group health insurance. These policies are most affected by ObamaCare's community-rating regulations, which require insurers to accept everyone but limit or ban them from varying premiums based on age or health. The law also mandates "essential" benefits that are far more generous than those currently offered.

According to consultants from Oliver Wyman (who wrote on the issue in the January issue of Contingencies, the magazine of the American Academy of Actuaries), around six million of the 19 million people with individual health policies are going to have to pay more—and this even after accounting for the government subsidies offered under the law. For example, single adults age 21-29 earning 300% to 400% of the federal poverty level will be hit with an increase of 46% even after premium assistance from tax credits.

Determining the number of individuals who will be harmed by changes to the small-group insurance market is harder. According to the Medical Expenditure Panel Survey, conducted by the Department of Health and Human Services, around 30 million Americans work in firms with fewer than 50 employees, and so are potentially affected by the small-group "reforms" imposed by ObamaCare.

Around nine million of these people, plus six million family members, are covered by employers who do not self-insure. The premium increases for this group will be less on average than those for people in the individual market but will still be substantial. According to analyses conducted by the insurer WellPoint for 11 states, small-group premiums are expected to increase by 13%-23% on average.

This average masks big differences. While some firms (primarily those that employ older or sicker workers) will see premium decreases due to community rating, firms with younger, healthier workers will see very large increases: 89% in Missouri, 91% in Indiana and 101% in Nevada.

Because the government subsidies to purchasers of health insurance in the small-group market are significantly smaller than those in the individual market, I estimate that another 10 million people, the approximately two-thirds of the market that is low- or average-risk, will see higher insurance bills for 2014.

Higher premiums are just the beginning, because virtually all existing policies in the individual market and the vast majority in the small-group market do not cover all of the "essential" benefits mandated by the law. Policies without premium increases will have to change, probably by shifting to more restrictive networks of doctors and hospitals. Even if only one third of these policies are affected, this amounts to more than five million people.

In addition, according to Congressional Budget Office projections in July and September 2012, three million people will lose their insurance altogether in 2014 due to the law, and six million will have to pay the individual-mandate tax penalty in 2016 because they don't want or won't be able to afford coverage, even with the subsidies.

None of this counts the people whose employment opportunities will suffer because of disincentives under ObamaCare. Some, whose employers have to pay a tax penalty because their policies do not carry sufficiently generous insurance, will see their wages fall. Others will lose their jobs or see their hours reduced.

Anecdotal evidence already suggests that these disincentives will really matter in the job market, as full-time jobs are converted to part time. Why would employers do this? Because they aren't subject to a tax penalty for employees who work less than 30 hours per week.

There is some debate over how large these effects will be, and how long they will take to manifest. However, the Bureau of Labor Statistics reports on a category of workers who will almost surely be involuntarily underemployed as a result of health reform: the 10 million part-timers who now work 30-34 hours per week.

These workers are particularly vulnerable. Reducing their hours to 29 avoids the employer tax penalty, with relatively little disruption to the workplace. Fewer than one million of them, according to calculations based on the Medical Expenditure Panel Survey, get covered by ObamaCare-compliant insurance from their employer.

In total, it appears that there will be 30 million to 40 million people damaged in some fashion by the Affordable Care Act—more than one in 10 Americans. When that reality becomes clearer, the law is going to start losing its friends in the media, who are inclined to support the president and his initiatives. We'll hear about innocent victims who saw their premiums skyrocket, who were barred from seeing their usual doctor, who had their hours cut or lost their insurance entirely—all thanks to the faceless bureaucracy administering a federal law.

The allure of the David-versus-Goliath narrative is likely to prove irresistible to the media, raising the pressure on Washington to repeal or dramatically modify the law. With the implementation of ObamaCare beginning to take full force at the end of the year, there will be plenty of time before the 2014 midterm elections for Congress to consider its options.

For those like Health and Human Services Secretary Kathleen Sebelius, who told a gathering a few weeks ago at the Harvard School of Public Health that she has been "surprised" by the political wrangling caused so far by ObamaCare, there are likely to be plenty of surprises ahead.

Mr. Kessler is a professor of business and law at Stanford University and a senior fellow at the Hoover Institution.

A version of this article appeared April 30, 2013, on page A17 in the U.S. edition of The Wall Street Journal, with the headline: The Coming ObamaCare Shock.

View the original article here

States Worry About Rate Shock During Shift To New Health Law

Health and Human Services Secretary Kathleen Sebelius and Illinois Gov. Pat Quinn announce conditional federal approval of the state's plan for a health insurance exchange under the new healthcare law. Even states that back the law are worried about an initial rate jump in some premiums. (Scott Olson / Getty Images / February 18, 2013)

WASHINGTON — Less than a year before Americans will be required to have insurance under President Obama's healthcare law, many of its backers are growing increasingly anxious that premiums could jump, driven up by the legislation itself.

Higher premiums could undermine a core promise of the Affordable Care Act: to make basic health protections available to all Americans for the first time. Major rate increases also threaten to cause a backlash just as the law is supposed to deliver many key benefits Obama promised when he signed it in 2010.

"The single biggest issue we face now is affordability," said Jill Zorn, senior program officer at the Universal Health Care Foundation of Connecticut, a consumer advocacy group that championed the new law.

Administration officials have consistently downplayed the specter of rate increases and other disruptions as millions of Americans move into overhauled insurance markets in 2014. They cite provisions in the law that they say will hold down premiums, including new competitive markets they believe will make insurers offer competitive rates.

Exactly how high the premiums may go won't be known until later this year. But already, officials in states that support the law have sounded warnings that some people — mostly those who are young and do not receive coverage through their work — may see considerably higher prices than expected.

That is because of new requirements in the law aimed at making insurance more comprehensive and more affordable for older, sicker consumers.

Insurance regulators in California, which has enthusiastically embraced the law, cautioned the Obama administration in a recent letter about "rate and market disruption."

Oregon's insurance commissioner, another supporter of the law, said new regulations could push up premiums for young customers by as much as 30% next year. He urged administration officials to slow enactment of the new rules.

A leading advocate for consumers in their 20s, Young Invincibles, sounded a similar caution, suggesting in a letter to administration officials that additional steps may be needed to protect young people from rising premiums. Young Invincibles mobilized in 2010 to help pass the healthcare law.

And regulators in Massachusetts, which was the model for Obama's law, recently warned that although many residents and small businesses in the state "will see premium decreases next year, a significant number will see extreme premium increases."

The law does include many new protections for consumers. Even those now sounding alarms emphasize the importance of those provisions, including guaranteed coverage for Americans with preexisting medical conditions.

"For most people, this will be a dramatic improvement," Zorn said.

The new law also is designed to make insurance more affordable for many consumers. Millions of Americans who make less than four times the federal poverty level — or about $92,000 for a family of four — will qualify for federal subsidies to offset the cost of their premiums if they don't get insurance through employers.

But these new protections and benefits — largely intended for Americans who do not get health coverage through their employers — also threaten to drive up costs.

Next year, there will be new limits on how much insurers can charge older consumers. Insurers will be banned from charging more to women or people with illnesses.

The industry will have to offer plans that cover a new basic set of benefits, including prescription drugs, mental health, pediatric dental care and other services. And insurers will be prohibited from placing annual or lifetime limits on coverage.

The nonpartisan Congressional Budget Office estimates that insurance premiums for those who buy coverage on their own probably will be 10% to 13% higher in 2016, in large part because health plans will be much more comprehensive. Many consumers will probably pay less, however, because of the subsidies available in the law.

The healthcare law also includes a new tax and new fees on insurance companies that the industry says it will pass on to consumers.

The provision that will prevent insurance companies from charging older consumers more than three times what they charge young consumers has generated particular concern among regulators. In many states, insurers now can charge five times as much or more to people in their 50s and 60s.

The requirement was a top priority of the influential AARP. It is designed to make insurance more affordable to a group that often most needs insurance. But as rates come down for older people, they may increase for consumers in their 20s, regulators worry.

View the original article here

Obamacare Sticker Shock: It Gets Worse

“Already, the Affordable Care Act is helping to slow the growth of health-care costs,” President Obama boasted during his State of the Union address. Apart from the fact that the statement is untrue, the line will be a real howler next year, especially for the young people who so enthusiastically supported him.

Doug Holtz-Eakin, president of the American Action Forum, shows why. AAF conducted a survey of health-care insurers and found that premiums are going up for key groups as a result of the new health law — by a lot!

The survey studied individual examples in specific markets to show the impact of major Obamacare reforms.

The result? “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,” according to the AAF survey.

The survey asked insurers how the market reforms would affect policies for specific individuals and small groups in 2014 in Chicago, Phoenix, Atlanta, Austin, Milwaukee, and Albany. 

Milwaukee citizens will be hit hardest: The young and healthy can expect premium increases of 190 percent. The lowest premium increases in these big cities will be in Phoenix where young people will face a 157 percent premium increase.

Older, sicker people will see their premiums reduced as a result of the changes required by Obamacare, which limits how much insurers can use age and health status in calculating premiums. 

In Milwaukee, AAF found, older and less healthy people in the individual market will see average premium reductions of 15 percent. In Austin, premiums will be 32 percent lower for this group. The survey found that older and sicker individuals in all of these markets will see an average decrease in premium costs of just under 25 percent.

Many young people have lower incomes and therefore will be eligible for subsidized insurance to help offset the sticker shock. But they will still face higher deductibles, co-payments, and insurance premiums than they would absent the law. And taxpayers will be footing a much higher bill than if people had choices in a competitive market rather than insurance that is highly regulated by Washington bureaucrats.

According to a Politico article about the survey:

Robert Zirkelbach, spokesman for America’s Health Insurance Plans, said the report shows the wide variation of effects the law will have and illustrates the need to pay close attention to affordability.

“It’s important to go beyond simply looking at averages, because that will tell us what it’s going to mean for specific individuals and specific families,” he said.

He says the subsidies will be important to consumers but don’t change the underlying reality. “Subsidies don’t lower premiums any more that Pell Grants lower the cost of college tuition,” he said.

In any case, expect to hear more from Obamacare foes about its impact on premiums for some young, healthy people.

One of the goals of Obamacare is to draw many more young and healthy individuals into the insurance market. With prices like these, that is unlikely, even with subsidies. AAF provides more evidence of the failure of Obamacare in meeting its main goals of lowering costs and expanding coverage.

View the original article here

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

Printer-friendly version

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.

###

View the original article here

Health Insurance Brokers Prepare Clients For Obamacare Sticker Shock

WASHINGTON, DC - MARCH 27: People participate in a protest on the second day of oral arguments for the Patient Protection and Affordable Care Act in front of the U.S. Supreme Court building on March 27, 2012 in Washington, DC. Today is the second of three days the high court has set aside to hear six hours of arguments over the constitutionality President Barack Obama's Patient Protection and Affordable Care Act. (Image credit: Getty Images North America via @daylife)

By Dr. Scott Gottlieb, M.D.

A California insurance broker, who sells health plans to individuals and small businesses, told me that she’s prepping her clients for a sticker shock. Her local carriers are hinting to her that premiums may triple this fall, when the plans unveil how they’ll billet the full brunt of Obamacare’s new regulations and mandates.

California is hardly alone. Around the country, insurers are fixing to raise rates by double digits. They’re privately briefing politicians in Washington on what’s in store. Those briefings are leaving a lot of folks up and down Pennsylvania Avenue jumpy.

What’s gives? President Obama, after all, said he’d prevent these sorts of prices. His new health law gave state regulators the power to block premium increases. It even created a federal agency to oversee insurance rates. But these bureaucrats are spectators to the price hikes. They’re mere wallflowers. Even in the bluest of states.

Their silence is the best evidence of who is culpable for the increases. It’s the policymakers. It’s Obamacare. The President is accepting the premium hikes as an allowable consequence of his healthcare policies.

There’s buzz in Washington that to ease the price hikes, the Obama team may slow down some of the most expensive regulations. This might include the law’s mandatory community rating. One approach they’re said to be considering is allowing some of the historically based underwriting to stay in place for a time.

But premiums will still rise because, in the end, everything has a price. The law’s prohibition against traditional insurance underwriting is just one of its costly provisions. Washington can try to force health plans to price insurance below the cost of these mandates. But then the health plans will simply lose money and move out of markets. To keep the insurers whole, and accommodate new rules, the cost of insurance must get re-priced higher. That re-pricing is what’s coming this fall.

This lesson was learned by Massachusetts, after it adopted its own skinny version of Obamacare. To meet the law’s costs, insurers hiked premiums. Massachusetts’s regulators blocked the increases. All the plans reported losses the very next quarter.

This simple economic axiom doesn’t mean the higher premiums were tolerated in Massachusetts, or will be embraced by Washington. What Massachusetts did afterwards is a lesson for where the entire nation is heading under Obamacare.

Massachusetts regulators went after the underlying source of spending – peoples’ use of medical services. First and foremost, that meant taking on the providers. Massachusetts moved to regulate the prices that doctors and hospitals could charge and the kind of services that they could offer. Rates are rising nationally because, like Massachusetts, Obamacare guarantees more free medical services while doing nothing to make the market for these things more efficient, or competitive. Like Massachusetts, some form of price controls is the next political chapter.

The Obama team can’t merely squeeze the insurers. That’s why our political elite will tolerate many of the looming premium hikes. In the end, health plans are mostly just passing along the costs of the underlying services. That’s even truer today now that Washington is directly regulating insurance company profit margins.

To try and get a handle on rising costs, the Obama Administration will start to go after the healthcare providers. The President seemed to hint about all this when he referenced the need to “lower the cost” of healthcare in his inaugural address.

Simply cutting payment rates has consequences, or course. It reduces reimbursement without regard to value or need. But indiscriminate cuts to fixed rate schedules for everything from doctor visits to hospital stays are Washington’s standard approach for sanding down Medicare costs. The Affordable Care Act will institutionalize these same political tactics across the rest of the healthcare market.

This is the next iteration of healthcare reform. Call it Obamacare 2.0. Doctors will become the next bogyman in Washington. The target is already being fixed to their hide. As for the rest of us, our health insurance will become increasingly illusory.

The prices Washington pays for medical services will gradually fall below the rates where things will be readily supplied. That’s the legacy of Medicaid, and increasingly Medicare as well. Don’t worry, though. The medical services that you’ll have a hard time accessing are mostly the stuff you’ll only need if you get really sick.

Dr. Gottlieb is a physician and Resident Fellow at the American Enterprise Institute.

View the original article here

ObamaCare's Health-Insurance Sticker Shock

Health-insurance premiums have been rising—and consumers will experience another series of price shocks later this year when some see their premiums skyrocket thanks to the Affordable Care Act, aka ObamaCare.

The reason: The congressional Democrats who crafted the legislation ignored virtually every actuarial principle governing rational insurance pricing. Premiums will soon reflect that disregard—indeed, premiums are already reflecting it.

Central to ObamaCare are requirements that health insurers (1) accept everyone who applies (guaranteed issue), (2) cannot charge more based on serious medical conditions (modified community rating), and (3) include numerous coverage mandates that force insurance to pay for many often uncovered medical conditions.

Guaranteed issue incentivizes people to forgo buying a policy until they get sick and need coverage (and then drop the policy after they get well). While ObamaCare imposes a financial penalty—or is it a tax?—to discourage people from gaming the system, it is too low to be a real disincentive. The result will be insurance pools that are smaller and sicker, and therefore more expensive.

How do we know these requirements will have such a negative impact on premiums? Eight states—New Jersey, New York, Maine, New Hampshire, Washington, Kentucky, Vermont and Massachusetts—enacted guaranteed issue and community rating in the mid-1990s and wrecked their individual (i.e., non-group) health-insurance markets. Premiums increased so much that Kentucky largely repealed its law in 2000 and some of the other states eventually modified their community-rating provisions.

States won't experience equal increases in their premiums under ObamaCare. Ironically, citizens in states that have acted responsibly over the years by adhering to standard actuarial principles and limiting the (often politically motivated) mandates will see the biggest increases, because their premiums have typically been the lowest.

Many actuaries, such as those in the international consulting firm Oliver Wyman, are now predicting an average increase of roughly 50% in premiums for some in the individual market for the same coverage. But that is an average. Large employer groups will be less affected, at least initially, because the law grandfathers in employers that self-insure. Small employers will likely see a significant increase, though not as large as the individual market, which will be the hardest hit.

We compared the average premiums in states that already have ObamaCare-like provisions in their laws and found that consumers in New Jersey, New York and Vermont already pay well over twice what citizens in many other states pay. Consumers in Maine and Massachusetts aren't far behind. Those states will likely see a small increase.

By contrast, Arizona, Arkansas, Georgia, Idaho, Iowa, Kentucky, Missouri, Ohio, Oklahoma, Tennessee, Utah, Wyoming and Virginia will likely see the largest increases—somewhere between 65% and 100%. Another 18 states, including Texas and Michigan, could see their rates rise between 35% and 65%.

While ObamaCare won't take full effect until 2014, health-insurance premiums in the individual market are already rising, and not just because of routine increases in medical costs. Insurers are adjusting premiums now in anticipation of the guaranteed-issue and community-rating mandates starting next year. There are newly imposed mandates, such as the coverage for children up to age 26, and what qualifies as coverage is much more comprehensive and expensive. Consolidation in the hospital system has been accelerated by ObamaCare and its push for Accountable Care Organizations. This means insurers must negotiate in a less competitive hospital market.

Although President Obama repeatedly claimed that health-insurance premiums for a family would be $2,500 lower by the end of his first term, they are actually about $3,000 higher—a spread of about $5,500 per family.

Health insurers have been understandably reluctant to discuss the coming price hikes that are driven by the Affordable Care Act. Mark Bertolini, CEO of Aetna, the country's third-largest health insurer, broke the silence on Dec. 12. "We're going to see some markets go up by as much as 100%," he told the company's annual investor conference in New York City.

Insurers know that the Obama administration will denounce the premium increases as the result of greedy health insurers, greedy doctors, greedy somebody. The Department of Health and Human Services will likely begin to threaten, arm-twist or investigate health insurers in an effort to force them into keeping their premiums more in line with Democratic promises—just as HHS bureaucrats have already started doing when insurers want premium increases larger than 10%.

And that may work for a while. It certainly has in Massachusetts, where politicians, including then-Gov. Mitt Romney, made all the same cost-lowering promises about the state's 2006 prequel to ObamaCare that have yet to come true.

But unlike the federal government, health insurers can't run perpetual deficits. Something will have to give, which will likely open the door to making health insurance a public utility completely regulated by the government, or the left's real goal: a single-payer system.

Mr. Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Mr. Litow is a retired actuary and past chairman of the Social Insurance Public Finance Section of the Society of Actuaries.

A version of this article appeared January 14, 2013, on page A15 in the U.S. edition of The Wall Street Journal, with the headline: ObamaCare's Health-Insurance Sticker Shock.

View the original article here