It’s been an interesting few days for those of us following Obamacare. Three new studies came out—one each from Avalere Health, the Kaiser Family Foundation, and the Manhattan Institute. And they instantly became fodder in the ongoing argument over how the new health care law will affect insurance premiums for people who buy health coverage on their own. The law’s defenders cited the Avalere and Kaiser reports, which demonstrated that next year’s premiums will likely be lower than most experts had expected. The law’s opponents cited the Manhattan Institute report, which showed that next year’s premiums will be higher than the premiums many people pay now.
Funny thing is, both sides are right. And we’ve sort of known that for a while. These latest reports confirm previous findings from these same groups and other experts, such as those at the Urban Institute, Commonwealth Fund, and Department of Health and Human Services. We can reduce them to five essential facts—and one very big issue still in contention.
(Remember, everything you are about to read is about the “non-group” market only—i.e., it describes changes for people who buy coverage on their own, directly from insurance carriers or through brokers. That’s a relatively small number of people. The vast majority of Americans get insurance through large employers, Medicare, or Medicaid. That's not going to change anytime soon, so none of the following really applies to them.)
1. Thanks to Obamacare regulations on insurers, the “sticker price” of coverage will go up. Non-group coverage today is usually pretty cheap. One reason is that it frequently has big gaps in coverage—no benefits for maternity or prescription drugs, for example, or deductibles that reach into five figures. Another reason is that insurers charge more, or deny coverage to, people with pre-existing medical conditions.
Obamacare prohibits those practices. Under the law, all plans will include a basic, essential set of benefits—and must be sufficiently generous to cover at least 60 percent of the typical person’s medical bills. (That’s the standard for "bronze" plans. "Silver," "gold," and "platinum" insurance options would cover a greater share of expenses.) Insurers must also sell coverage to anybody who wants it, regardless of medical condition, without raising prices or withholding benefits. These and other requirements make insurance more comprehensive and more widely available, which is what reformers promised to do. But the regulations also make it more expensive.
2. Thanks to Obamacare’s subsidies for poor and middle-class Americans, relatively few people will pay the full sticker price. Under the law, subsidies are generally available to anybody with income that is less than four times the poverty line—which is about $46,000 a year for an individual and $94,000 a year for a family of four. Most Americans make less than that. The amount will vary by income, with poorer people getting more assistance. But among those families receiving assistance, the subsidies will be worth an average of $2,600 per year, according to another recent Kaiser Family Foundation study. That's a lot of money. And remember the subsidies act as discounts: If you are eligible for a subsidy, you don’t have to wait until you file your tax return to get your money back. Instead, the government will calculate your subsidy when you apply for insurance, and then show you coverage prices that reflect that difference. Ideally, that will all happen online, through the new websites state and federal authorities are building, though we'll have to see whether it works that way at the ouset.
Conservatives note that subsidies aren’t free: They cost money, which the law generates through a combination of taxes (mostly on wealthy people) and reduced spending (mostly through Medicare paying less for goods and services). That’s true, although that’s pretty much what the law's coverage provisions are supposed to do: Help poor and middle-income people pay for their insurance by shuffling money around the health care system and increasing taxes for very wealthy people.
3. Remember that averages mask a lot of variation. How much you pay for insurance will depend on your income, because of the subsidies. It will also depend on your age, because the law permits insurers to vary premiums by as much as factor of three. But there’s another, huge factor: Geography. Every state has its own market with different insurers and different providers. Among the states that have made public filings so far, Oregon and Virginia have some of the cheapest premiums, while Rhode Island and Vermont have some of the most expensive. Even within states, prices can vary by location. In New York, for example, coverage in Manhattan will cost more than coverage in Binghamton.
4. Expect some "premium joy" and some "rate shock." Older and sicker people will tend to pay less money in premiums next year, because the law limits the ability of insurers to charge these people more. People who can barely pay their premiums now may also pay less next year, because they'll be getting those subsidies. These people will experience what Princeton economist Uwe Reinhardt has dubbed "premium joy." People who benefit from today's pricing practices—younger, healthier, and generally male—will tend to pay higher premiums in the new system. And at higher incomes, they won't get big subsidies to offset the price. These people will experience what conservatives call “rate shock.”
If you read the dispatches some of my liberal friends wrote, hailing the findings, you might have come away thinking the Kaiser report showed this kind of rate shock doesn’t exist. Avik Roy, co-author of the Manhattan Institute study, has objected that the Kaiser report said no such thing. He's right! The Kaiser report (like the Avalere report and most of the others we’ve seen) was basically orthogonal to the argument over whether people will pay more or less than they did last year.
5. So far, Obamacare premiums appear lower than experts predicted. This (among other things) is what the Kaiser report showed. And it’s a legitimately big deal, for a few reasons. When the Congressional Budget Office calculated how much the law as a whole would cost, its experts made an assumption about how much insurance would cost—and then used that to figure out how much the federal government would have to spend on subsidies. If the real cost of insurance turns out to be lower than CBO expected, then the federal government won’t have to spend as much on subsidies, and it will end up saving more money. So far, that’s precisely what has happened.
No less important, low premiums are a sign that the system is working like it’s supposed to work: Insurers, eager to get new customers, are competing with one another by keeping prices low. As Paul Krugman noted yesterday, conservatives should take some delight in that.
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That leaves one big question: How many people will pay more and how many will pay less than they are paying for insurance today? Or, to put it a little more crudely, are there more winners than losers? Here no consensus exists. Obamacare critics like Roy insist the losers outnumber the winners—in other words, that the majority of people buying non-group coverage will end up paying more for their insurance. You can read the new Manhattan Institute study (with its very cool interactive chart) to see his argument. Links will take you to explanations of the methodology that he and his fellow researchers (Yevgeniy Feyman and Paul Howard) used to arrive at their conclusion. Basically, they looked for the cheapest policies available today, then adjusted in ways they say account for insurers' ability to increase prices or deny coverage for people with pre-existing conditions. The new report also discusses the role of subsidies, and who is eligible for them.
The experts and scholars I trust most take a very different view of how Obamacare will alter the insurance market. They think the lack of good data on what people pay today makes it almost impossible to be certain how premiums will change, and they're not even sure the comparison is valid. If you're paying more for a more comprehensive and stable insurance policy, does that qualify as "rate shock"? But, when pressed by reporters like me, they say the majority of people will probably end up paying less than they do now, as long as you account for subsidies, Medicaid, and the ability of young adults to enroll in special catastrophic plans or stay on their parents' policies. (The Medicaid issue is particularly important here, for reasons that Linda Blumberg and Matthew Buettgens of the Urban Institute documented in a paper earlier this year. Adrianna McIntyre and Josh Fangmeier had more to say about this in June, in a series of posts for the blog Project Millennial.)
Of course, the debate about how premiums is just one piece of the story. The ultimate question is whether, under Obamacare, people buying insurance on their own think they are getting a good deal. And the answer to that question will depend on a bunch of factors—not just how much people pay up front in premiums, for example, but also what kind of out-of-pocket costs they face if and when they get sick. And what's affordable to one person may not seem so affordable to another.
One of the most important takeaways from the Kaiser Foundation report is that, overall, prices on the non-group market look pretty comparable to the cost of insurance that most employers provide for their employees. And for people receiving substantial subsidies, the monthly premium payments will be really low: In several states, bronze plans will be available for less than $100 a month for a single, non-smoking 25-year-old making $25,000 a year. But even cheap insurance can seem expensive when you're struggling just to pay other bills. How you react to the new prices will depend a lot on how much you value protection from financial shock and access to medical care—and whether you care about paying a modest penalty for having no insurance.
Here in this space, and elsewhere in the media, we've argued about this topic, too. I'm sure we'll keep at it. But, at this point, it's a bit like arguing about the point spread ten minutes before kickoff. In October, Obamacare’s insurance marketplaces will be ready for business and a five-month open enrollment period will begin. People shopping for insurance aren’t going to pay attention to what the policy wonks say. They will focus on the numbers and plans in front of them—how much they cost, what they’d be getting in return, and whether they think it’s a worthwhile purchase. Only then will we start to know, with any certainty, how well this part of Obamacare is working.
Jonathan Cohn is a senior editor of the New Republic. Follow him on twitter @CitizenCohn
This item has been updated for wonkish clarity and grammatical correctness.
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