‘In California’s New State-Run Health-Insurance Market, Kaiser Permanente Will Cost You’

by Veronique de Rugy

The success or failure of the expansion of health-care coverage to most Americans will hinge on the state exchanges’ ability to provide affordable individual insurance rates. Unfortunately, some signs already suggest that this may not happen, at least for some people. While some Americans (mostly older and sicker) will benefit from lower rates, others (mostly younger and healthy) will see their rates go up significantly, even after counting federal subsidies. What this could mean is that some of them will choose to pay the individual-mandate penalty rather than get coverage. What happens in California is important, because some 5 million people, many of them lower-income and the uninsured, will be eligible for a state-run exchange next year.  But so far, the signs aren’t good. The Los Angeles Times reports:

In California’s new state-run health insurance market, Kaiser Permanente will cost you.

The healthcare giant has the highest rates in Southern California and some other areas of the state, surpassing rivals such as Anthem Blue Cross and other smaller competitors. The relatively high premiums from such a strong supporter of the federal healthcare law surprised industry analysts, and it has sparked considerable debate about the company’s motives. . . .

In one key barometer of rates, Kaiser has the most expensive premiums for a 40-year-old in Los Angeles, Orange, San Bernardino and Riverside counties for a mid-level Silver plan. Statewide, the nonprofit company has the highest or second-highest premiums for a Silver plan in 12 of the 18 regions where it’s selling HMO policies in Covered California, the state market that opens for enrollment Oct. 1.

Kaiser’s Silver plan premium for a 40-year-old in southern Los Angeles County is $325 per month, 34% higher than the cheapest policy in the area, from Health Net Inc., at $242.

Kaiser is an important company to follow, they explain: It’s “the state’s biggest health insurer with a 40% share of the market, according to 2011 data from Citigroup. Anthem Blue Cross, a unit of industry giant WellPoint Inc., was second with a 23% share of employer and individual customers.”

Avik Roy of the Manhattan Institute has written extensively about what may happen in California and the kind of rate shock that the state’s consumers may experience, linking to the larger debate that has taken place on this issue (see also pieces by the Washington Examiner’s Philip Klein and Hoover Institute’s Lanhee Chen, and Megan McArdle has a good summary of the debate here).

Now, consumers in California won’t be the only ones seeing their rates go up. Reason’s Peter Suderman pointed out last week that Ohio’s individual insurance rates may go up as much as 88 percent. He writes

The cost of health plans sold on the individual market will rise by an average of 88 percent, according to an analysis by the state’s insurance regulators based on 214 proposed plans from 14 difference insurance companies. Now, that’s an average increase across the individual insurance market, so the release also notes that “those costs do not specifically track with the premiums insurers charge individual customers. However, state regulators also say that “it is expected that these increases in costs will also translate to significant premium increases for many Ohioans.”

Roy has more here. Finally, this morning Klein explains why the study by the Ohio’s insurance regulators should be taken seriously:

Supporters of Obamacare were quick to dismiss the news, noting that Taylor was a Republican and arguing that the study was misleading. The New Republic’s Jonathan Cohn, one of the most prolific defenders of the health care law, insisted that it wasn’t fair to compare average premiums, because that doesn’t account for differences in the quality of the plans.

For instance, he described that under the current system, one of the cheapest bare bones plans in Ohio costs just $29 per month, but could stick enrollees with annual out of pocket expenses as high as $25,000. Under Obamacare, out of pocket costs are capped at $6,350 for the cheapest “bronze” level plan.

But in his analysis, Cohn is doing what he often accuses critics of Obamacare of doing — cherry-picking a plan that results in the most outrageous number to demonstrate a point — in this case, $25,000 out of pocket costs. But even if we give up the idea of comparing average premiums, the announced Ohio rates don’t present a pretty picture for Obamacare.

Ohio regulators also announced that, “Projected costs from the companies for providing coverage for the required essential health benefits ranged from $282.51 to $577.40 for individual health insurance plans.” That means that the cheapest plan available under Obamacare in Ohio will be $282.51.

But according to a search of eHealthInsurance.com, a 26 year-old living in Cleveland, Ohio, could currently purchase an Anthem SmartSense Plus plan for $89.45 per month. That’s less than a third of the cost of the lowest Obamacare rate, as reported by Ohio regulators, and the annual out of pocket expenses for the Anthem plan are $6,000 — which is less than Obamacare’s bronze option.

In fact, under the current system, the same hypothetical 26 year-old could purchase a Medical Mutual plan with a $2,500 annual out of pocket limit, for $188.41 per month — still significantly cheaper than the least expensive Obamacare option.

In the end, we won’t know for sure until the exchanges are implemented, but there are good reasons to believe that many consumers around the country will experience rate shock. That shouldn’t be surprising, because someone has to pay for the expansion of coverage at lower rates to people with pre-existing conditions or the other mandates imposed in the law. Suderman explains:

Premium subsidies will reduce the impact on individual pocketbooks somewhat. But even factoring those in, it’s not clear that young, single adults buying coverage under the law are ready for the costs it will impose on them. And, of course, those subsidies aren’t free either. If costs rise, but subsidies hide some or all of the hike, that just means that taxpayers are making up the difference.