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.

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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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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.

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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.

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