Most Individual Health Insurance Isn't Good Enough for Obamacare

If you buy your own health insurance now, you'll be in for a big change when you sign up for coverage in 2014.

Just over half of the individual plans currently on the market do not meet the standards to be sold next year, when many key provisions of President Obama's Affordable Care Act kick in, according to a University of Chicago study. That's because the law sets new minimums for the basic coverage every individual health care plan must provide.

"They will offer a lot more financial protection," Jon Gabel, the report's lead author, said of the individual plans that will be available next year. His team drew its conclusions from 2010 data supplied by health insurers.

Some 15 million Americans, or about 6% of non-elderly adults, currently buy coverage on the individual market. Starting this fall, they'll be able to shop for and enroll in health insurance through state-based exchanges, with coverage taking effect in January. By 2016, some 24 million people will get insurance through the exchanges, while another 12 million will continue to get individual coverage outside of them, the Congressional Budget Office estimates.

Both groups will be affected by the new Obamacare rules. Starting next year, nearly all individual plans -- both in and out of the exchanges -- will be required to cover an array of "essential" services, including medication, maternity and mental health care. Many plans don't currently offer those benefits.

So what happens to the plans that don't meet the new minimum standards? They will likely disappear. A handful of existing plans will be grandfathered in, but the qualifying criteria for that is hard to meet: Members have to have been enrolled in the plan before the ACA passed in 2010, and the plan has to have maintained fairly steady co-pay, deductible and coverage rates until now.

The insurers in the Blue Cross Blue Shield Association are major players in the individual market. They are readying new product lineups for 2014, according to Kim Holland, the trade group's executive director of state affairs. She expects most existing Blue Cross individual plans to be discontinued.

"They are going by the wayside," she said. "Plans will have to conform to the higher level of benefits."

Consumers buying individual plans will be able to choose between four levels of coverage next year: platinum, gold, silver and bronze.

Platinum plans will carry the highest premiums but offer the lowest out-of-pocket expenses, with enrollees paying no more than 10%, on average. At the other end of the spectrum are bronze plans, which will have the lowest monthly premiums but higher deductibles and co-payments totaling up to 40% of out-of-pocket costs, on average. Starting in 2014, all Americans will be required to carry coverage or face fines. Those penalties start at $95 per adult or 1% of adjusted family income, whichever is greater, and escalate in later years.

People with annual income of up to 400% of the poverty line -- or roughly $45,000 for an individual and about $92,000 for a family of four -- will get federal subsidies to help defray the premium costs.

Most individual plans sold next year, even the lowest-level "bronze" plans, are likely to charge higher premiums than today's most bare-bones individual insurance. For many customers, though, those costs will be offset by lower out-of-pocket costs and more comprehensive coverage, said Karen Pollitz, a senior fellow at the Kaiser Family Foundation.

"Now, they buy a policy and when they get sick, they may go broke anyway because the policy leaves them with so much to pay," she said, noting that deductibles of $10,000 are not uncommon.

The insurance industry's trade group counters that some people may wind up with more coverage -- and higher monthly costs -- than they want. Some individuals may choose to simply pay the fine instead, said Robert Zirkelbach, a spokesman for America's Health Insurance Plans.

"Now, people can choose the plan that best meets their needs," Zirkelback said. Next year, "they may choose not to buy any coverage."

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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.

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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.

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GOP Secretary Of State: Allowing Citizens To Register On Election Day Undermines Their ‘Individual Freedoms’

Georgia Secretary of State Brian Kemp (R)

Giving citizens the flexibility to register to vote (or update their existing registration if they’ve recently moved) on Election Day actually chips away at Americans’ “individual freedoms,” according to Georgia Secretary of State Brian Kemp (R).

During a panel discussion on voting at the conservative Heritage Foundation on Thursday, Kemp lambasted the idea of same-day voter registration. Ten ideologically diverse states, from Idaho to Wisconsin to California, have enacted the program, also known as Election Day registration. By removing barriers to voting and making it easier for citizens to register, studies have found that EDR boosts turnout on average by 7 to 14 percentage points.

Kemp dismissed EDR as a “buzzword” that is as an affront to Americans’ right not to participate in elections. “[It] really gets down to the individual freedoms of people in our state and Americans in general and their ability to decide for themselves, ‘yes I want to register to vote and participate in the process, or no that I don’t,” Kemp said.

KEMP: I think we do have to have commonsense protections to make sure that our rolls are secure to stop potential voter fraud. This whole issue with dealing with the federal government and universal registration and same-day registration and all these different buzzwords really gets down to the individual freedoms of people in our state and Americans in general and their ability to decide for themselves, “yes I want to register to vote and participate in the process, or no that I don’t.”

Watch it:

There are countless problems with our voting system, but infringing on Americans’ right to not vote is not one.

Regardless, Kemp’s assertion that EDR somehow compels citizens to vote is ludicrous. The law simply allows those citizens who want to to register on Election Day.

In fact, Georgia, as much as any state, could benefit from EDR. In 2012, the Peach State ranked 33rd out of 50 states with a voter turnout of 58 percent. Meanwhile, five of the top six voter turnout states have EDR.

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Individual and Small Group Insurance Premiums and the Affordable Care Act: Analytic Results

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GOP Bill Would Repeal Health Law's Individual Mandate

Republican senators introduced a bill Tuesday to repeal the unpopular individual mandate in President Obama's signature healthcare law.

Sens. Orrin Hatch (R-Utah) and Lamar Alexander (R-Tenn.) introduced the measure, dubbing it the "American Liberty Restoration Act." They said the mandate is an assault on constitutionally protected freedoms — despite the Supreme Court's ruling last year that upheld the mandate as constitutional.

"This legislation we are introducing today is simple: it strikes the individual mandate, so we can instead find ways of providing people with health care, but in a manner that doesn’t run counter to our constitutional framework of limited government," Hatch said in a statement.

The individual mandate requires most taxpayers to either purchase insurance or pay a penalty. There are exceptions for people who are too poor to buy coverage or for whom insurance would be too expensive (defined as costing more than 8 percent of annual income).

“Congress should repeal the law, especially the individual mandate, and then proceed step by step to reduce the cost of health care so more Americans can afford to buy insurance," Alexander said.

Hatch and Alexander's bill is unlikely to go anywhere.

The Supreme Court represented conservatives' best chance to get rid of the mandate, and the prospect of legislative repeal was taken fully off the table once President Obama won a second term and Democrats expanded their majority in the Senate.

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Who will pay the Obamacare individual mandate tax?

Slide 9 | Obamacare in Pictures

President Obama has promised not to raise taxes on the middle class, but nearly 70 percent of those who will pay the Obamacare individual mandate tax earn less than 400 percent of the federal poverty level (FPL), and 10 percent live in poverty. This chart shows the share of total payers of the tax by income group.

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