Three months from today—October 1, 2013—is X-Day, the day that Obamacares subsidized health insurance exchanges are supposed to become fully operational. And today brings more news of “rate shock,” the phemonenon by which Obamacare dramatically increases the underlying cost of health insurance for people who buy it on their own. Louise Radnofsky of the Wall Street Journal looked at insurance rates in eight states, and found that while some sicker people will get a better deal, “healthy consumers could see insurance rates double or even triple when they look for individual coverage.”
Radnofsky conducted an analysis similar to the initial one I undertook for California; she compared rates for 40-year-old male non-smokers in eight states under the exchanges to the rates she could find on eHealthInsurance.com, a website sponsored by electronic insurance broker eHealth EHTH +1.6% (NASDAQ:EHTH). In Richmond, Virginia, she found that the cheapest plan on eHealth was $63 a month, compared to $193 a month for the cheapest Bronze-level plan on the Virginia exchange: an increase of 206 percent.
“For a 40-year-old single nonsmoker,” she writes, “a ‘bronze plan covering about 60% of medical costs will be available for about $200 a month in most places, the [insurers] proposals show.” This comports with what I found in California and Washington.
Radnofskys analysis—properly—focuses on the underlying cost of health insurance, and not the net cost, inclusive of Obamacares subsidies, given that subsidies arent free. It is useful, however, to understand the proportion of people who get the low rate offered to the healthy majority, relative to the higher rates for the sicker minority.
If I plug the most populous Richmond ZIP code—23223—into the federal governments comparable site, finder.healthcare.gov, I dont find a plan for $63 a month. I do find a plan from Coventry (NYSE:AET), called CoventryOne Value Copay 20/40-5,000, which has a $5,000 deductible and a $10,000 out-of-pocket limit. The monthly premium is $94.84, but 8 percent of applicants had to pay a surcharge, and 18 percent of applicants were not accepted. Assuming that surcharged applicants paid 75 percent more, and denied applicants 200 percent more, we arrive at a risk-adjusted rate of $135 a month, which means that Obamacare represents a 43 percent premium to the risk-adjusted rate, and a 104 percent premium to the healthy rate.
“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 thats not exactly right, because as Sam Richardson has shown, Obamacare Bronze plans arent 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 Richardsons table illustrates below, the Obamacare plan had a higher out-of-pocket maximum and the same actuarial value as the 2013 Kaiser plan. The Obamacare plan covers prescription drugs, which insurers tell me adds less than $10 to the cost of the plan. With all that, a plan you can buy today costs $100 a month; the Obamacare version for 2014 costs $205.
Radnofsky notes that the success of Obamacares exchanges hinges on persuading, if not forcing, healthier people to enroll, even though they will pay far more for insurance than they will consume in health care.
“Supporters of the law say tighter regulation on insurance practices gives consumers more protection and is worth the extra cost, but they have to persuade people who dont have an immediate need for health care of that,” she observes. “If only sick people buy into the new insurance pools, prices could shoot up.”
Obamacares advocates argue that its 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 well find out soon enough.
Original Source: http://www.forbes.com/sites/theapothecary/2013/07/01/wsj-health-insurance-rates-could-double-or-even-triple-for-healthy-consumers-in-obamacares-exchanges/