Just before the holiday weekend, California released some data on insurance premiums in its forthcoming Obamacare exchange for next year, along with a press release touting those rates as generally lower than those found today—a claim then repeated in a lot of the coverage of the announcement.
The claim in California’s press release—“the rates submitted to Covered California for the 2014 individual market ranged from two percent above to 29 percent below the 2013 average premium for small employer plans in California’s most populous regions”—was based on a comparison of 2013 rates in one market (the small-employer market) to 2014 rates in another (the individual market) in the state. It wasn’t a crazy comparison, in one sense, because the small employer market has a set of insurance rules (basically a form of community rating and guaranteed issue) similar to some of what Obamacare will require in its exchanges. So next year’s rates in a newly heavily regulated market will resemble this year’s rates in an already heavily regulated market. That’s an interesting piece of information, but it doesn’t tell you what will happen to rates in California’s individual market. Will consumers be paying more or less in the Obamacare exchange?
Avik Roy of Forbes has gone through the data and performed such a comparison, and he finds that in the state’s individual market (that is, the market in which the newly released rates will actually take effect) the rate data show that next year will see huge spikes in premium costs—increases of between 64 percent and 146 percent, by his calculations. Some people will receive subsidies to help cover that cost, some won’t, but whether it’s taxpayers or beneficiaries paying the premiums those premiums will be significantly higher than they are now.
The comparison offered in the California press release helps make it clear why that is: Obamacare’s new insurance rules. Those rules would certainly help some people—people with pre-existing conditions in the individual market will find it easier to buy coverage for instance—but they will also raise premium costs very significantly.
Obamacare’s defenders can certainly point to the former fact, but they cannot deny the latter one and insist the new California data show there will be no rate shock, as many tried to do over the past week. And Obamacare’s opponents should propose to the public ways of addressing the needs of people with pre-existing conditions (and ways of addressing the broader problems of our health-financing system) that would not induce such rate shocks for everyone else and would not involve Obamacare’s immense array of convoluted rules, open-ended spending, counterproductive taxes, burdensome mandates, and daunting market distortions.
There is a better way.