Obamacare: Premium Spikes to Rock California's Individual Market

Posted: May 31, 2013 12:02 PM

The indispensable Avik Roy, one of the handful of Righty healthcare works on the scene today, reports on what's in store for many Californians next year, thanks to the new healthcare law:

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.

The premium jolt will be particularly acute for young and middle-aged people in the individual market.  Roy breaks it down in this handy chart:


The red bar is the average cost of the five most affordable plans in California's individual market today, via eHealthInsurance.com.  Once Obamacare goes into effect, twenty-somethings' cheapest option (dark blue) will be roughly double what they are paying today.  Consumers in their early 40's have it even worse.  The current monthly average of the five least expensive options available to this group is $121.  Unlike the 20's crowd, these consumers won't have anything resembling a "bare bones" catastrophic plan on their menu; the cheapest selection is Obamacare's "bronze" level (light blue), which will increase their premiums by 116 percent.  When California projected its new rates last week, liberals were triumphant, latching on to the state exchange's headline-friendly analysis that the new post-Obamacare rates would range between 2 percent higher to 29 percent lower, compared to 2013 levels.  The Washington Examiner's Phil Klein advises Californians to keep the champagne on ice:

California, essentially, is saying that the exchanges will give participants more benefits for their money so the cost of the new offerings should be compared to more comprehensive plans. But what if individuals don’t want more coverage? For many young and healthy individuals, insurance on the exchanges will be a much more costly option than what they have now. In 2012, the average individual insurance plan cost Californians $177 per month, according to online insurance marketplace ehealthinsurance.com. Yet the report put out by Covered California lists the average “silver” plan on the exchange as costing individuals $321 per month. That’s an 80 percent increase — or even more for those who still have the freedom to go without insurance and currently pay $0 in premiums. That freedom will disappear come January.

They're cherry-picking data in order to force an apples-to-oranges comparison.  Here's a translation of their argument, in layman's terms: "Sure, your premiums may increase quite a bit, but your new Obamacare plan will be mandated to cover a lot more services -- so compared to the existing comprehensive plans you haven't chosen to buy, you'll be paying less."  But the president's promise wasn't "you'll pay more to get more."  It was, you'll get more and your premiums will drop significantly, and the deficit will shrink, and...etc.  Bloomberg's Lanhee Chen exposes another element of California's sleight-of-hand:

The only way Covered California's experts arrive at their conclusion is to compare...next year’s individual premiums to this year’s small employer premiums.  They’re making this particular comparison, they explain, because they believe that the marketplace for individually purchased insurance will look like the marketplace for small employer-purchased insurance next year. For example, the state already requires insurers to issue policies to all comers in the small employer market. Premiums are therefore higher today for small employers than for individuals purchasing coverage on their own.  What this means, however, is that Covered California is creating for itself a very favorable and already higher baseline from which to compare next year’s individual health insurance premiums. That’s how they’re able to create the appearance that Obamacare’s reforms will lower individual premiums. 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.

Yuval Levin summarizes: "The comparison offered in the California press release helps make it clear why that is: Obamacare’s new insurance rules. Those rules would certainly help some people—people with pre-existing conditions in the individual market will find it easier to buy coverage for instance—but they will also raise premium costs very significantly. Obamacare’s defenders can certainly point to the former fact, but they cannot deny the latter one and insist the new California data show there will be no rate shock, as many tried to do over the past week."  He urges Obamacare's opponents to highlight market-based solutions that would help cover people with pre-existing conditions without inflicting premium rate shocks on everyone else.

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