Which health-insurance plan costs more — one that covers 50 percent of your expected health expenses, or one that covers 60 percent?
It’s not a trick question. And the answer to it goes to the heart of the problem with studies claiming that Obamacare will not raise insurance premiums next year.
Consider, for instance, a recent Rand Corporation study claiming “there could be a decline in total premiums” for Americans who buy health insurance directly from insurance companies. Press headlines trumpeted that talking point. “No Widespread Premium Increases Coming under Obamacare,” said one Capitol Hill publication. “Study: Price Shocks on Health Exchanges Appear Unlikely,” blared NPR. “Many states will see little to no change in premiums,” reported Bloomberg.
It sounded like good news. But there’s a hitch. In arriving at this conclusion, the Rand researchers compared rates for pre- and post-Obamacare plans with the same actuarial values. That’s a fancy term for the percentage of expected health costs paid by the insurance company.
The lead Rand researcher explained to a Bloomberg reporter why their study didn’t consider changes in actuarial value: “Some people buy more generous coverage because of the law and that will lead to increased costs. . . . In my mind, that’s not the same as rate shock because the person will be getting a better plan.”
But there’s one big catch: Obamacare will force people to buy richer plans — whether they want to or not. An article in the journal Health Affairs last year noted most plans now purchased by individuals do not meet the minimum-coverage standards that the law will require starting next year.
To return to where we started: A health plan covering 60 percent of expenses will cost more than a health plan covering 50 percent of expenses. Obamacare forces health plans to cover at least 60 percent of expenses — a requirement most individually purchased health plans don’t meet. Yet the Rand study ignored the impact of this new Obamacare mandate when claiming that premiums will not rise next year.
When Obamacare was being debated in 2009, the nonpartisan Congressional Budget Office did examine the impact of the new benefit mandates on health-insurance premiums. It concluded that “average premiums [under Obamacare] would be 27 percent to 30 percent higher because a greater amount of coverage would be obtained,” in part because of “the minimum level of coverage (and related requirements) specified in the proposal.” In other words, premiums will go up because Obamacare forces people to buy more comprehensive — and therefore more expensive — health plans.
The Rand study was funded by the Department of Health and Human Services, which certainly must be pleased that the analysis conveniently ignored the impact of Obamacare’s forcing people to buy richer coverage. And the claim made by the Rand researcher — that people may pay more for coverage next year but “will be getting a better plan” — echoes those now being made by other defenders of the law.
Regardless, it’s not consistent with what Senator Obama promised when campaigning for president. A 2008 document issued by the Obama campaign highlights the candidate’s pledge: “For those who have insurance now, nothing will change under the Obama plan — except that you will pay less. Obama’s plan will save a typical family up to $2,500 on premiums.” Candidate Obama didn’t say “you will pay more, but you’ll get better coverage” — he said “you will pay less,” period.
Having engaged in a massive bait-and-switch — signing a law that raises premiums after he promised he would lower them — the president and his administration are now trying to justify the law’s impending premium increases. But the false premises under which it was sold in the first place should provide Congress with every reason to use its power of the purse and stop Obamacare before this sticker shock hits the American people on January 1.
— Chris Jacobs is a senior policy analyst at the Heritage Foundation’s Center for Health Policy Studies.