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“Rate shock” explained

Obamacare is going to raise rates by 88% in Ohio while California officials think health reform has “hit a home run for consumers.”  As these are the only two large states with published rates (not that I don’t love and respect Vermont), we’ll focus on OH and CA.

(For the quick net-net, see the last paragraph)

As Jonathan Cohn points out, this is really an apples to grapefruit comparison.  In order to accurately assess the cost differential, one has to do an actuarially accurate comparison.

Alas, I can’t find any that are credible; Ohio’s doesn’t factor in benefit design differences or the impact of no medical underwriting and fewer age bands; there are several other factors that affect what consumers will actually pay.

First – this only affects people who get coverage thru the exchanges.  That’s about 14 percent in California. Most get insurance thru their employers, Medicaid, or Medicare, so they are unaffected.

Second, a LOT of people will get subsidized coverage, so what they pay will be less – sometimes a lot less – than the advertised price. In California, about half of those getting benefits from the Exchange will get coverage at a lower cost; a 40 year old who makes just under $24,000 a year will get very good insurance at $90 a month (Health Net Silver plan). (I know, taxpayers, hospitals, drug companies, and insurers will pay for those subsidies, but most of the press has been focused on what the insured’s cost will be, so we’ll focus on that)

Third, it’s NOT just the cost of the insurance, it’s the cost of care – premiums and out-of-pocket expenses.  The benefits covered by the Exchange plans are much richer than the lowest-cost plans now offered in many states.  For example, the individual Bronze plan in Ohio has an out-of-pocket cap of $6,350, compared to UnitedHealthcare’s Saver 80’s $13,000 max out of pocket.  But the Saver 80 doesn’t cover maternity, vision, mental health care, drugs or office visits (except for very limited wellcare visits).  So consumers who pay less in premiums for today’s Saver 80 than tomorrow’s Bronze plan will spend much more out of pocket, far outweighing any premium savings.

Fourth, costs for younger people will likely be higher under the Exchange, while costs for older folks may well come down.  That’s a function of the reduced number of “age bands”;  insurance-speak for charging us older folks more because we are worse risks than you young pups.

Fifth, because medical underwriting is banned under Obamacare, many individuals who can’t get coverage at any price today will get coverage tomorrow.  Today, many folks with a history of heart disease or cancer or other serious conditions can’t get any coverage in some states, and only at incredibly high prices in others – due to pre-existing medical conditions.  For those people, any conversation about higher costs is irrelevant, because no one will sell them insurance, or if they do it will be at rates unaffordable to anyone but the top 0.1%.  So, if you have high blood pressure, a family history of heart disease or cancer, a BMI above an acceptable range, lupus or diabetes or high cholesterol or asthma or depression or any of dozens of other “conditions”, you will be able to get coverage next year – at the same price as anyone else your age.

Here’s the net.

For older folks, benefits will likely be richer, out-of-pocket expenses and premiums lower.  Younger people will likely pay more for better coverage than they have today.

4 thoughts on ““Rate shock” explained”

  1. Good summary Joe.

    Based on all past insurance history, the exchanges will attract a significant number of unhealthy people, and the rates charged by insurers will go up in year 2.

    This is OK so long as the subsidies stay intact.

    But the Republicans are itching to kill or at least cripple the subsidies. The 2014 election may be key in this regard.

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Joe Paduda is the principal of Health Strategy Associates



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