Obamacare’s Big Question: What’s It Going To Cost Me?

Americans will be counting to determine whether health care costs change for them under the new law. | B.K. Bangash/AP

WASHINGTON — The cost of health coverage under Obamacare remains one the biggest mysteries of the nation’s health care overhaul.

But nagging cost questions will slowly be answered this summer as insurers and state officials set 2014 health plan rates for people who buy coverage outside of work or purchase it through small employers.

Those two coverage areas – the individual and small group markets – face the biggest rule and cost changes next year, when the main provisions of the Affordable Care Act finally kick in.

Early rate proposals around the country are a mix of steep hikes and modest increases. The numbers will change in coming months as state and federal regulators use their new authority under the health care law to review rate-hike requests of 10 percent or more and insurers vary their rate proposals based on competitors’ prices.

The new rates and rules for individual and small group coverage won’t directly affect roughly 84 percent of Americans with job-based health insurance – about 125 million people. But the changes will resonate throughout the health insurance universe and will go a long way toward shaping, and possibly changing, public opinion about Obamacare.

“This is a very, very big deal,” said Doug Holtz-Eakin, the president of the American Action Forum, a conservative research center. “The implications are enormous for the future of American health insurance, and its importance is not best measured by the fraction of people currently covered in the small group or individual markets.”

About 24.5 million people have small-group coverage through companies with 50 or fewer employees, according to federal estimates.

Just 15.4 million people purchase individual coverage, according to the nonpartisan Kaiser Family Foundation, a nonprofit health care research center. But that number will increase substantially next year, when premium tax credits become available to help people buy individual coverage through the new online insurance “exchanges” in October.

The individual, or "non-group," market is the most troubled sector. It’s known for high customer dissatisfaction and turnover, high coverage denial rates, lean benefits and premiums that are subject to frequent increases.

The health care law will engineer a complete makeover of individual coverage next year through a series of revisions that are designed to make newly issued policies more generous, accessible, affordable and transparent.

The new rules guarantee access to individual coverage regardless of current or past health problems, require each plan to cover at least 60 percent of costs and limit annual out-of-pocket costs such as co-payments and deductibles.

They also require beefed-up mandatory benefits, limit the amount that older plan members may be charged, outlaw annual benefit-spending limits and no longer allow insurers to vary rates based on a person’s gender, occupation or medical claims history.

Small group plans face the same changes, but they’re more likely to already meet some of the law’s new requirements, such as guaranteed access to coverage. So rate changes in small group plans won’t be as significant as those in the individual market, experts say.

The health law’s “individual mandate” requires all Americans to have health insurance beginning next year or face a fine. The law will bring insurers 25 million new customers over the next decade, according to federal estimates.

The law also requires that all individual and small-group health plans in 2014 cover 10 “essential health benefits,” including substance abuse services, pediatric dental and vision care, mental health treatment and other services often excluded from current policies.

Individual and small group policies that were in effect before the measure was signed into law in March 2010 – known as "grandfathered plans" – aren’t required to meet some of the new rules and consumer protections. Consumers in those plans who want the new protections will have to reinsure under new policies next year.

Premiums: Higher for some, lower for others

Experts say those improved benefits and the guaranteed availability of coverage will increase average premiums for healthy people in the individual market next year.

Those in poor health with the same coverage, however, very likely will see lower rates, on average, as their once-higher premium burden is redistributed among all enrollees. The law prohibits insurers from segregating higher- and lower-cost members into separate risk pools.

A provision that prohibits women from being charged more than men solely because of their sex will shift costs between men and women to eliminate gender variances in states that currently allow it.

New age-rating restrictions that limit older plan members from being charged more than three times as much as younger ones probably will increase individual and small-group premiums for young people and lower them for older people.

With or without the health care overhaul, most experts expect private health insurance premiums to increase next year because of the rising costs. Whether the new law exacerbates or moderates those increases depends on who’s answering the question, what states they’re talking about and which plan members would be affected.

“There are winners and losers in this,” said James O’Connor, a principal at Milliman, an actuarial consulting firm that deals with health care and insurance.

But in New Jersey, New York, Massachusetts, Vermont and, to a lesser extent, Maine, Washington and Oregon, those same individual-plan premiums might see little or no change and may even decline, O’Connor said. Coverage requirements and consumer protections in those states are already similar to what the new law requires.

Keep in mind that while the improvements in coverage will increase premiums for some, they also may lower out-of-pocket spending for deductibles, coinsurance and co-payments. Increased competition among insurers also will help keep premiums in check.

Rate shock

The prospect of higher premiums has fueled concerns about “rate shock,” in which large numbers of young people – who most likely face the largest premium increases – forgo individual coverage altogether and just pay the fine for violating the individual mandate. If that happens, rates would climb for everyone, experts say.

But tax credits available to individuals and families who earn 133 percent to 400 percent of the federal poverty level will help offset the higher premiums for individual coverage. In 2013, the tax credits would go to individuals who earn roughly $15,300 to $46,000 or to four-person families that earn roughly $31,300 to $94,200.

About two-thirds of people age 30 and under who have no coverage or are enrolled in individual coverage and who won’t qualify for Medicaid – the people most likely to face rate shock – would be eligible, according to estimates by Avalere Health, a health care advisory firm

The tax credits are available only for those who get coverage through the new state insurance exchanges. The amount of the tax credit – which is based on income – is revealed after submitting an online application. The money is sent directly to the applicant’s insurance company to be applied to the premiums.

Young adults who don’t qualify for the tax credit but can’t afford individual coverage will have access to “catastrophic plans,” with lower premiums.

Small group coverage

Individual circumstances will determine whether premiums rise or fall next year for people with small-group or small-employer coverage.

“Groups that are made up of younger, healthy males will tend to have higher rate increases than those groups who are unhealthy or are comprised mainly of older people,” O’Connor said.

And low-cost, small-group plans will see the greatest premium increases, “while those with the greatest decreases will be the high-cost groups,” according to recent congressional testimony by Cori Uccello, a senior health fellow at the American Academy of Actuaries.

The health care law requires that deductibles for small-group plans in 2014 not exceed $2,000 for individuals and $4,000 for families.

While people with individual policies and workers with small-group coverage will experience the biggest cost changes next year, the 125 million other Americans with job-based insurance won’t escape unscathed.

The law imposes taxes on the insurance, pharmaceutical and medical device industries to help pay for expanded Medicaid coverage and premium subsidies. Because they’re nondeductible, those taxes, or a portion of them, very likely will be passed on to all consumers with work-based coverage in the form of higher insurance premiums.

Other factors that will affect premiums next year include geographic cost differences, whether large swaths of employers decide to drop coverage, and the demographics and health status of people who do drop job-based insurance for individual coverage.

The wide range of possibilities underscores the difficulty insurers face in trying to synthesize the new rules, predict their effects and price their products competitively and accurately.

Earl Pomeroy, a former North Dakota Democratic congressman and state insurance commissioner, said insurance companies were facing “the most complicated rating challenge” that he’d ever seen.

“It involves the great unknown,” Pomeroy said. “New systems, new market structures and behavior responses from the population that will be impossible to predict."

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The One Question Congress Must Ask Before Confirming Obama’s CIA Director

The Senate Intelligence Committee will hold a hearing tomorrow on the confirmation of President Obama’s nominee for Director of the Central Intelligence Agency, John Brennan. There are a number of questions Brennan should and needs to answer but the hearing presents the perfect opportunity to get the current top Obama administration counterterrorism official perhaps most closely involved in the targeted killing program against al Qaeda to answer the fundamental question about it: when does it end?

Since his first bid to direct the Agency fizzled in 2008 after questions were raised about his role in the CIA torture program during the Bush years, Brennan has filled an at times more vital role in the Obama administration. Acting as the Assistant to the President for Homeland Security, serving under the National Security Adviser, Brennan has advised the President on counterterrorism for the past four years. As such, his access to the President to weigh in on security matters domestic and international has been almost unparalleled. In the aftermath of the failed Christmas Day bombing in 2009, Brennan authored a scathing review of what was then U.S. counterterrorism policy. While the Newtown tragedy was still ongoing last December, it was Brennan who first briefed Obama about the school shooting.

Brennan’s most controversial role has been his front-and-center position in the Administration’s military campaign against al-Qaeda and its affiliates. The use of targeted killings — most famously executed with drones — against individuals and groups suspect of connection to terrorist groups off the battlefield is by far the most visible outcome of those discussions. In a profile written in the Washington Post, Brennan is identified as the primary supporter of codifying the rules regarding when and where armed drone strikes could be carried out into what’s now called “the playbook” and the benign-sounding disposition matrix that identifies targets for strikes.

So Brennan, then, is ideally positioned to answer the fundamental question that needs to be answered to get a hold on America’s targeted killing program:

What role do targeted killings play in the broader U.S. counter-terrorism strategy and under what circumstances might we cease to employ them?

The question goes beyond the tactic of drone strikes to the conditions that cause them to be used in the first place. As a tactic, drone strikes have garnered significant opposition due to the potential for blowback among the populations where they are utilized, as well as the secrecy that surrounds the CIA’s classified program in Pakistan and moral questions about the serious harm cost in civilian lives the program carries with it. However, whether the program is achieving the ends that the Obama administration seeks, or even an explanation of what those ends are, is often left out of the debate and questioning of government officials.

Getting Brennan to explain what the Administration’s end game is is the most important step towards getting a handle on the program. Were the program to continue indefinitely, without any clear guidelines as to what sufficient success to cease killings might look like, all of the associated problems — blowback, civilian casualties, and undermining international law — would likely be exacerbated, as even a tightly regulated program would invariably carry the risks of unintended consequences. Moreover, a failure to give a clear account of the reasons why the Administration believes targeted killings are effectively degrading al-Qaeda and integrating that strategy into a legal understanding of when that degradation is enough to justify ending the program risks allowing targeted killings to continue well after they’ve become counterproductive. There’s also something intrinsically dangerous about a war without a clearly defined endpoint.

Defining what strategic victory looks like would also help get a handle on the thorny legal problems surrounding killing suspected American al-Qaeda members. According to the Department of Justice white paper released Monday night, much of the Administration’s justification for the killing of American citizen Anwar al-Awlaki stemmed from the Authorization of the Use of Military Force (AUMF) against al-Qaeda after 9/11. An account of when the AUMF might no longer permit targeted killings would also provide a basic benchmark for judging when the Administration’s claimed power to kill Americans would expire on its own terms.

The Administration has clearly thought about these matters. Former Pentagon General Counsel Jeh Johnson hinted that there was “a tipping point at which so many of the leaders and operatives of al-Qaeda and its affiliates have been killed or captured…that al-Qaeda as we know it, the organization that our Congress authorized the military to pursue in 2001, has been effectively destroyed.” Retiring Secretary of Defense Leon Panetta similarly said that targeted killings are “not something that we’re going to have to continue to use forever.” Getting Brennan to clarify Johnson and Panetta’s remarks would go a long way towards providing some needed oversight for the targeted killing program.

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The question at the core of the data caps debate

By Michael Weinberg, vice president, Institute of Emerging Innovation, Public Knowledge - 01/04/13 03:00 PM ET

Internet Service Providers (ISPs) regularly insist that data caps are a legitimate tool to ease congestion on their networks and an effective way to signal value to consumers. But, as we have argued, data caps do not resolve congestion, are confusing to consumers, and lend themselves to unfair and anticompetitive behavior. ??In light of this disagreement, it is a promising sign that a recent study published by the National Cable & Telecommunications Association (NCTA) and co-authored by Steven S. Wildman, the new Chief Economist of the FCC, moves beyond some of the previous rhetoric and takes a significant step towards focusing the debate on real areas of conflict. ??Unfortunately, it stops short of recognizing a critical distinction in understanding the heart of the disagreement. Let’s take a look:

Congestion is not the issue

The most refreshing section of the study is the one that is not there. There is no meaningful discussion of usage-based pricing as a tool to reduce network congestion or a suggestion that monthly data limits are a reasonable way to impact congestion. There is also no invocation of the mythical “data hog,” a sinful creature that can only be punished with data caps. Hopefully, the omission is NCTA’s tacit admission of two things: that cable networks are not congested and, if they become so in the future, monthly caps will do little to address that congestion.??

Price discrimination is the key

??Instead, the report focuses on usage-based pricing as a form of price discrimination. This type of value-neutral economic discrimination (in contrast to other types of discrimination that are morally, politically, and even economically problematic) appears to be one of the key motivating factors behind the imposition of usage-based pricing. At its core, price discrimination is about making people who value something more pay more for it and allowing people who value something less pay less for it. This is the way that most of the economy works and there is no reason that price discrimination per se should not be allowed for broadband pricing.

This is the report’s key argument. Price discrimination happens every day across our economy. As an economic practice it creates value generally and can do the same in the world of broadband. Furthermore, price discrimination can make a form of a good or service available to people who might be priced out without it.??

All of this is true and all of this is important to understand before having a meaningful discussion about usage-based pricing and data caps. However it is the beginning, not the end, of that discussion. But it is also where the report stops.??

Price discrimination is not the problem, data caps are??

The key question about usage-based pricing is not if the general practice of price discrimination has a place in the world of broadband. After all, ISPs have used speed to implement price discrimination since the beginning of broadband. Instead, the key question is whether using data caps or usage-based pricing to implement price discrimination has a place in the world of broadband. On that question the report is silent.??

That silence is disappointing. Public Knowledge’s position is that data caps and usage-based pricing is a type of price discrimination that is especially susceptible to anti-consumer manipulation by ISPs and can suppress activities that we generally encourage. That is why they warrant attention.??

At its core, price discrimination relies on sending signals to consumers. A consumer values X highly and therefore should pay more for it. That same consumer sees little value in Y and therefore should pay less. One of the fundamental problems with using data caps and usage-based pricing as part of a price discrimination strategy is that the signal is hard for consumers to receive. This deficiency becomes clear when usage-based pricing is compared to the existing price discrimination tool: speed.??

Speed is a signal that is easy to understand??

Imagine a consumer operating in a world where speed is used to implement price discrimination. She chooses a speed tier and begins using the internet.  Some things she wants to do work well at the speed she selected. However, other things do not work as well. Perhaps pages load too slowly for her liking or video buffers and displays at a low resolution. Every time a page loads slowly or video buffers she gets a clear signal: “your tier does not support the activity that you are doing at this very moment.” This signal is temporally connected to the activity and easy to understand – slow load times are because of a slow connection.

??At that moment the consumer can consider how valuable the activity is to her, and how often she has gotten that signal in recent days or weeks. If the activity is sufficiently important or the buffering occurs with annoying regularity, she may decide to upgrade her tier.  Having used the low tier to its fullest capacity and found it wanting for a collection of known activities, that decision is a reasonably informed one.??

Data caps are much harder

??Contrast that with a consumer operating in a world with a monthly data cap, the most popular implementation of usage-based pricing. She selects a cap tier and begins using the internet. Some things she wants to do work well at the tier she selected. Others do not.  Unfortunately, it can be hard to tell which is which because she does not find out she has run out of data until her cumulative monthly use exceeds her cap. When she receives that alert, or her bill at the end of the month full of overage charges, she gets a muddled signal: “your tier does not support something, or some combination of things, you did in the past month.” ??

At that moment the consumer likely does not remember everything that she did over the past month online, or how it compares to other months. Did she watch five videos or six? Was the website she visited two weeks ago featuring abnormally rich interactive content? Did she upload photos to share with her friends? Are any, or any combination, of those things worth paying more for?  ??

In the face of uncertainty, many consumers will come to a frustrating but reasonable conclusion: the best path is to over pay and under use. As long as they buy a higher tier than they need and avoid trying anything new online, they should be fine.

??Focusing on policy differences??

When Public Knowledge and others raise concerns about usage-based pricing, those concerns are about usage-based pricing, not price discrimination.  Price discrimination that relies on usage-based pricing, especially if it is implemented by an ISP with a pay-video business to protect, raises a number of usage-based pricing concerns. That is why our usage-based pricing white paper Know Your Limits ends with a series of usage-based pricing-specific recommendations. Assertions that price discrimination can help expand access or increase value to consumers may be true, but they are not particularly interesting or relevant to the conversation.??

The debate around usage-based pricing can only move forward when people stop talking past each other and start focusing on real policy differences. By moving past congestion and examining price discrimination, this report marks a significant step towards that goal. However any argument that focuses on price discrimination alone, or that relies on assertions that are merely true for price discrimination generally, do this issue a disservice. Hopefully the next report from ISPs will try to explain why usage-based pricing, and not just price discrimination, is a reasonable way forward for the broadband market.

Weinberg is vice president of the Institute of Emerging Innovation at Public Knowledge.

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Tech at Night: FCC gives in to Chuck Grassley, Republicans question the rush to privacy regulations

Am I tired of expressing dissatisfaction with the Obama FCC and other government intrusions? Never!

Al Franken is setting up an unfalsifiable rationale for government action against Verizon and Comcast. Gotta love that, eh?

I’m sure he, the FCC, or both will try to overturn the courts who say bundling is not anticompetitive. I like bundling. It saves me money when I’m buying both things anyway. Then again, I like choices in the marketplace.

Why we want FCC subsidizing tablet makers though, I have no idea.

Chuck Grassley’s threat seems to be working at least, as FCC starts to break down on LightSquared transparency, a necessary step toward being able to confirm the President’s new appointees to the commission.

Sprint continues to try to drum up government action, and also continuing to strain the bounds of credulity. Sprint says there’s a 4G duopoly, conveniently forgetting the fact that Sprint was the first major entry into the 4G market. Sprint just chose the wrong technology (WiMAX, instead of the apparently-winning LTE), the latest in a series of bad business decisions.

PATENT WARS: Even as Apple considers changing its patent strategies against firms like Samsung deploying Android, it turns out Nokia may provoke a whole new patent war over SIM card technology.

I’ve long plead for Mary Bono Mack to ease up on privacy issues, fearing it would lead to bad government action. Fortunately she seems to see those risks as well, and other Republicans like Marsha Blackburn also see the dangers of “a massive expansion of government… that would put some limits on our individual liberties.” Yes, yes, yes, exactly. That’s why I say we need to get privacy issues back into the realm of common sense self precautions, not government dictates.

This will be the last Tech at Night from California. Also because of my move to Virginia next week, will be no posting Monday or Wednesday as I will be traveling across the country to my new home, so have fun until next week!

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