OBAMACARE MAY 24, 2013
Predictions of an Obamacare apocalypse seem a little less credible today, thanks to California.
On Thursday, officials in that state offered the first detailed glimpse of what consumers buying health benefits on their own can expect to pay next year. And from the looks of things, these consumers will be getting a pretty good deal.
Based on the premiums that insurers have submitted for final regulatory approval, the majority of Californians buying coverage on the state's new insurance exchange will be paying less—in many cases, far less—than they would pay for equivalent coverage today. And while a minority will still end up writing bigger premium checks than they do now, even they won't be paying outrageous amounts. Meanwhile, all of these consumers will have access to the kind of comprehensive benefits that are frequently unavaiable today, at any price, because of the way insurers try to avoid the old and the sick.
It’s hard to provide a precise figure on premiums in the new exchange, which is officially called Covered California, because so much depends on individual circumstances, plan selection, and region. But you can get a sense of the prices by looking at what a 40-year-old single person would pay, on average, for the second cheapest “silver” plan on the new market. Such a plan, which would cover about 70 percent of a typical person’s medical expenses, would go for about $300 a month or around $3,600 a year. That compares favorably with what insurance costs today. The typical employer plan, for example, presently costs about $5,500 a year. Employer plans are generally more generous than the silver plans would be, so you’d expect them to be more expensive—but not by such a large margin.
Of course, people who get insurance from an employer may not realize they’re paying so much for insurance. They see only the employee share, which is typically a lot less. Then again, most people paying for insurance on the California exchange will also a pay a lot less, because they will qualify for tax credits that are functionally the same as a discount.
Somebody with an income at 250 percent of the poverty line, or around $29,000 a year, would on average pay just $2400 a year in premiums for that same silver plan. Somebody with an income of 150 percent of the poverty line, or about $17,000 a year, would pay just around $700 a year. This person could also get a “bronze” policy, which comes with higher out-of-pocket expenses, for essentially no premiums at all.
People under 30 buying insurance on their own would have one additional option—a "catastrophic" plan with coverage that, aside from a handful of preventative visits, only kicks in after bills reach about $6,000 for an indvidual. For a 21-year-old, the second cheapest catastrophic plan would cost about $150 a month, or $1,800 a year, on average.
The news matters to the approximtely 5 million people who, according to officials, will buy coverage through Covered California. But the news should also matter to people elsewhere in the country.
Obamacare critics have long warned, and Obamacare defenders have long feared, that insurers selling plans through the new exchanges would inevitably jack up premiums—if not to pad profits, than to adjust to the regulations that the new law imposes. Under Obamacare, insurers can no longer deny coverage or charge higher premiums to people with pre-existing medical conditions. In addition, the insurers must offer plans that include all “essential health benefits.” All else equal, those requirements should make insurance more expensive, since they require insurers to cover more sick people and pay for more kinds of services. If premiums get too high, that would scare away some consumers—in effect, causing a severe case of “sticker shock”—driving up the program’s overall costs and eventually destabilizing the whole system.
For some young, healthy people who now have skimpy, dirt cheap coverage, the new prices really will seem rather high by comparison. But experts think the number of people who fit that category will be small. That's one reason why, on Thursday, officials and consumer advocates were talking about a very different kind of sticker shock: Premium bids that were lower than expected. “For plan after plan, we’re getting the best-case scenarios,” said Peter Lee, executive director of Covered California.
The availble figures back up that verdict. As Sarah Kliff noted in the Washington Post on Thursday, an official projection from actuaries at Milliman had projected the average silver plan would cost $450 a month, not $300. And an official from California’s Blue Shield plans said the average premium increase for his organization’s plans—again, before taking into account the subsidies—was just 13 percent, of which 8 to 9 percent was the usual year-to-year increase in health care costs. “It’s a big deal,” Anthony Wright, executive director of the consumer group Health Access, said in an interview. And while Wright was careful to warn that insurance would still remain too expensive or have insufficient benefits for many people, he said the bids showed that reform will benefit millions—and is a major step in the right direction. “The scare mongers were wrong.”
One reason for the misplaced expectations may be that actuaries have been making worst-case assumptions, even as insurers—eyeing the prospects of so many new customers—have been calculating that it’s worth bidding low in order to gobble up market share. This would help explain why premium bids in several other states have proven similarly reasonable. “The premiums and participation in California, Oregon, Washington and other states show that insurers want to compete for the new enrollees in this market,” Gary Claxton, a vice president at the Kaiser Family Foundation, said via e-mail. “The premiums have not skyrocketed and the insurers that serve this market now are continuing. The rates look like what we would expect for decent coverage offered to a standard population.”
Another factor in these states could be a commitment to Obamacare's success—a commitment that spans the political, business, and medical leadership. In California, for example, the legislature gave Covered California the authority to be an “active purchaser”—that is, to negotiate bids aggressively, even if that meant narrowing the options consumers have in the end. By all accounts, Covered California used that authority—demanding that some plans lower bids or broaden physician networks to ensure access. Insurers haven't raised a huge fuss about this, at least not publicly.
The shared interest in making the new health care law work was clear to anybody watching or listening to the press conference on Thursday. Lee spoke about the day as a “historic” occasion, likening it to the launching of Medicare, when government made insurance available to millions of people who couldn’t get it before. Health care industry officials made similar statements, boasting of their collaboration with politicians and describing universal coverage as a “moral imperative.”
Unfortunately, millions of uninsured and under-insured Americans live in places like Florida and Texas, where there is far less sympathy—and a great deal more hostility—to the idea of Obamacare. It’s entirely possible that the insurance bids in those states will be a lot higher, precisely because state officials there are doing nothing to help and quite a bit to hurt implementation. But if that happens, blame won’t belong with the heath care law or the federal officials in charge of its management. It will belong with the state officials who can’t, or won’t, deliver to their constituents the benefits that California’s officials appear to be providing theirs.
Jonathan Cohn is a senior editor at the New Republic. Follow him on twitter @CitizenCohn