The Corner

Are You Ready For An Insurance Rate Shock?

Today, the Wall Street Journal has yet another story highlighting the rate shock that awaits many Americans when Obamacare’s subsidized health insurance exchanges become fully operational on October 1, 2013. After looking at insurance rates in eight states, the Journal’s Louise Radnofsky finds that, while older and sicker Americans will have access to a better deal than they used to, young and healthy Americans may be up for a serious rate shock.  She writes:

Healthy consumers could see insurance rates double or even triple when they look for individual coverage under the federal health law later this year, while the premiums paid by sicker people are set to become more affordable, according to a Wall Street Journal analysis of coverage to be sold on the law’s new exchanges.

The exchanges, the centerpiece of President Barack Obama’s health-care law, look likely to offer few if any of the cut-rate policies that healthy people can now buy, according to the Journal’s analysis. At the same time, the top prices look to be within reach for many people who previously faced sky-high premiums because of chronic illnesses or who couldn’t buy insurance at all.

She has a chart summing up her findings here. In addition, she details how things may play out in Virginia, one of the eight states examined in her study, “for a 40-year-old single nonsmoker—in the middle of the age range eligible for exchanges” buying a “bronze” plan, which generally covers about 60% of medical costs. Here is what she finds:

In Richmond, a 40-year-old male nonsmoker logging on to the eHealthInsurance comparison-shopping website today would see a plan that costs $63 a month from Anthem, a unit of WellPoint Inc. WLP -0.13% That plan has a $5,000 deductible and covers half of medical costs.

By comparison, the least-expensive plan on the exchange for a 40-year-old nonsmoker in Richmond, also from Anthem, will likely cost $193 a month, according to filings submitted by carriers.

The law is likely to offer a benefit to those who have difficulty getting insurance now or are pushed out of the market because they have had illnesses. Under the current system, the rate on the $63-a-month plan could be revised higher if a consumer indicates prior health problems in a medical questionnaire that must be filled out before buying the plan. The application also could be rejected entirely based on specific answers given.

Under the new health exchanges, plans are available regardless of health status, and a price can’t change once it is offered. Top-of-the-line plans on the exchanges that cover 80% of medical costs and have a wider network of doctors and hospitals are likely to be available for about $400 a month for a 40-year-old single person.

That is a lot of money for the lower-to-middle-income Americans who are expected to be the main customers on exchanges, but it could be less than some people currently encounter after a carrier considers their medical history.

Now, the question is whether or not, under these conditions, younger and healthier Americans will get insurance rather than opt out and pay the penalty. If they don’t, Obamacare will be in jeopardy. 

For much more, you can read this piece by Avik Roy over at Forbes. Roy offers his own rate-shock calculations. He also explains that, unlike what we often hear (including in Radnofsky’s piece), it is possible that the more expensive bronze plan that one will be able to get after the exchanges are implemented may not actually provide significantly better coverage. He writes:

“If a person in 2013 has a choice of buying a Chevrolet or a Cadillac health plan, and in 2014, they can only buy a Cadillac…are they going to be upset?” asks insurance consultant Bob Laszewski. “I think the answer is, yes.”

But that’s not exactly right, because as Sam Richardson has shown, Obamacare Bronze plans aren’t that different from what you can buy today on the individual market in terms of co-pays, deductibles, and actuarial value. Richardson found two nearly-identical plans sponsored by Kaiser in Sacramento, with identical networks of hospitals and doctors.

As Richardson’s table to the right illustrates, the Obamacare plan had a higher out-of-pocket maximum and the same actuarial value as the 2013 Kaiser plan. Today’s plan costs $100 a month; the Obamacare version costs $205.

He concludes with a broader observation about the current “rate shock” debate:

Obamacare’s advocates argue that it’s acceptable for healthy people to pay double or triple for individually-purchased health insurance, because the sick will benefit, and because the poor will be protected from the hikes (due to the subsidies). That seems optimistic to me—but we’ll find out soon enough.

Yes, we will. 

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