This Obamacare Rate Shock Is Good for You

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HEALTH CARE JULY 17, 2013

This Obamacare Rate Shock Is Good for You

Obamacare got some good press this morning, for a change. According to state officials in New York, insurance premiums for residents buying coverage on their own will fall by 50 percent next year, thanks to the new health care law. That’s before taking into account the federal subsidies that, for many and possibly most insurance buyers, will lower premiums even more. 

You’ve heard of “rate shock”? This would be the good kind—assuming it all checks out.

It might not. If you’ve followed stories like this before, then you know news isn’t always what it seems at first blush. That could be the case here. The news first came via a front-page story in the New York Times, written by Roni Caryn Rabin and Reed Abelson. The sources were the same state officials who officially announced the rates on Wednesday morning. But New York is one of the states where officials are enthusiastic about Obamacare. You should expect them to put the best possible spin on the news, just as you should expect state officials hostile to Obamacare to find the dark cloud lurking behind every silver lining. The New York officials have yet to reveal some key details—like how they came up with that 50 percent figure—and what exactly it means for people in different circumstances. (I've put in some questions, and will update this item if the answers require it.)

Having said all that, the available information certainly looks promising. An official document (embedded below) that the Times obtained for its story summarizes the average premiums that state regulators have approved for the non-group market. (“Non-group” means insurance you get on your own, rather than through an employer. That’s where Obamacare’s insurance changes will have the biggest effect.)  Premiums will vary a lot, by region, insurer, and plan. Probably the best way to digest the information is to focus on the bronze and silver plans. Bronze plans cover 60 percent of the typical person’s medical expenses. They are roughly equivalent to the high-deductible policies that, today, come with “health savings accounts.” Silver policies are more generous, since they cover 70 percent of expenses, but they are still less generous than typical employer policies. Most experts expect that people buying non-group coverage through Obamacare will choose bronze or silver policies, because people will tend to shop primarily on price. Just looking over the numbers, it appears that single adults shopping for coverage will find plenty of bronze and silver plans available for less than $400 a month, including a few in high-priced New York City. (Premiums for family coverage are higher, of course.)

Again, that’s before taking into account the sometimes huge discounts people will get from federal subsidies. Here’s how it would work out in practice, via the Times:

An individual with annual income of $17,000 will pay about $55 a month for a silver plan, state regulators said. A person with a $20,000 income will pay about $85 a month for a silver plan, while someone earning $25,000 will pay about $145 a month for a silver plan.

Even without the subsidies, it appears, the premiums next year will compare pretty favorably to what people tend to pay today. According to the most recent survey by America’s Health Insurance Plans, the average monthly premium for a single, non-group policy in New York was about $550 in 2009. And if the average premium in New York was $550 four years ago, it is higher now. A little over a year ago, Linda Blumberg and some colleagues at the Urban Institute issued a report predicting that Obamacare would mean premium reductions, sometimes dramatic, for people buying individual insurance in New York. Today’s news suggests that report was right.

Now, what does this tell us about Obamacare in the rest of the country? On the one hand, we should expect premiums in New York to decline by more than they will in most states. That’s because New York already has some of the Obamacare regulations that tend to make insurance more expensive: For example, state law already prohibits insurers from charging more to people with pre-existing medical conditions. Adding Obamacare to this mix means adding elements like subsidies and the individual mandate that will tend to make insurance cheaper. Things won't work out so neatly in states like Florida or Texas, which don’t have as many insurance regulations on the books already. Critics of the law will take this as vindication. A big reason insurance will get so much cheaper in New York, they'll say, is that Obamacare-style regulations already made it a lot more expensive there. That's more or less true, whether you like the regulations or not.

On the other hand, New York also seems to be reaping the benefits of a more competitive market. Based on the filings, it appears that some insurers are pricing very aggressively, trying to underbid competitors. Some will price too low, and end up losing money, while others may be saving in ways consumers won’t like—say, by offering very limited networks of doctors and hospitals. But the insurers will find a price that works for them. Meanwhile, people can pick and choose the plan they want, which is something many simply can’t do now because they can't really compare benefits and prices, or because they lack the money to pay for insurance in the first place. As New York officials pointed out today, per capita health care costs in the state are among the highest in the country. But these new premium rates are actually slightly lower than what the Congressional Budget Office had projected for a nationwide average. That's an encouraging sign.

Besides, what happens in New York is important for its own sake. A lot of people live there! The same goes for New Jersey, which has similar regulations in place and will likely end up with lower premiums. Meanwhile, the implementation news from other states—California, Oregon, Washington, Maryland, Vermont, the District of Columbia—has been generally positive, although Obamacare critics take a dimmer view. Put all those states together and you end up with a decent-sized chunk of the U.S. population for whom Obamacare is likely to show immediate, tangible benefits.

Politically, these people tend to live in the blue states, which is not coincidental. Those are states in which officials believe in Obamacare and have made good faith efforts to implement it. But that also tells you something about the law itself. Far from “unworkable,” as critics continually claim, it looks like the law can work pretty well, as long as state officials want it that way.

This item has been updated.

Jonathan Cohn is a senior editor of The New Republic. Follow him on twitter @CitizenCohn.

Obamacare in New York State

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