One of the most serious flaws with Obamacare is that its blizzard of regulations and mandates drives up the cost of insurance for people who buy it on their own. This problem will be especially acute when the lawâ€™s main provisions kick in on January 1, 2014, leading many to worry about health insurance â€œrate shock.â€
Last week, the state of California claimed that its version of Obamacareâ€™s health insurance exchange would actually reduce premiums. â€œThese rates are way below the worst-case gloom-and-doom scenarios we have heard,â€ boasted Peter Lee, executive director of the California exchange.
But the data that Lee released tells a different story: Obamacare, in fact, will increase individual-market premiums in California by as much as 146 percent.
Leeâ€™s claims that there wonâ€™t be rate shock in California were repeated uncritically in some quarters. â€œDespite the political naysayers,â€ writes my Forbes colleague Rick Ungar, â€œthe healthcare exchange concept appears to be working very well indeed in states like California.â€ A bit more analysis would have prevented Rick from falling for Californiaâ€™s sleight-of-hand.
Hereâ€™s what happened. Last week, Covered Californiaâ€”the name for the stateâ€™s Obamacare-compatible insurance exchangeâ€”released the rates that Californians will have to pay to enroll in the exchange. â€œThe rates submitted to Covered California for the 2014 individual market,â€ the state said in a press release, â€œranged from two percent above to 29 percent below the 2013 average premium for small employer plans in Californiaâ€™s most populous regions.â€
Thatâ€™s the sentence that led to all of the triumphant commentary from the left. â€œThis is a home run for consumers in every region of California,â€ exulted Peter Lee.
Except that Lee was making a misleading comparison. He was comparing applesâ€”the plans that Californians buy today for themselves in a robust individual marketâ€”and orangesâ€”the highly regulated plans that small employers purchase for their workers as a group. The difference is critical.
If youâ€™re a 25 year old male non-smoker, buying insurance for yourself, the cheapest plan on Obamacareâ€™s exchanges is the catastrophic plan, which costs an average of $184 a month. (Thatâ€™s the median monthly premium across Californiaâ€™s 19 insurance rating regions.)
The next cheapest plan, the â€œbronzeâ€ comprehensive plan, costs $205 a month. But in 2013, on eHealthInsurance.com (NASDAQ:EHTH), the average cost of the five cheapest plans was only $92. In other words, for the average 25-year-old male non-smoking Californian, Obamacare will drive premiums up by between 100 and 123 percent.
Under Obamacare, only people under the age of 30 can participate in the slightly cheaper catastrophic plan. So if youâ€™re 40, your cheapest option is the bronze plan. In California, the median price of a bronze plan for a 40-year-old male non-smoker will be $261. But on eHealthInsurance, the average cost of the five cheapest plans was $121. That is, Obamacare will increase individual-market premiums by an average of 116 percent.
For both 25-year-olds and 40-year-olds, then, Californians under Obamacare who buy insurance for themselves will see their insurance premiums double.
Impact highest in Bay Area, Orange County, and San Diego
In the map below, I illustrate the regional variations in Obamacareâ€™s rate hikes. For each of the stateâ€™s 19 insurance regions, I compared the median price of the bronze plans offered on the exchange to the median price of the five cheapest plans on eHealthInsurance.com for the most populous zip code in that region. (eHealth offers more than 50 plans in the typical California zip code; focusing on the five cheapest is the fairest comparator to the exchanges, which typically offered three to six plans in each insurance rating region.)
As you can see, Obamacareâ€™s impact on 40-year-olds is steepest in the San Francisco Bay area, especially in the counties north of San Francisco, like Marin, Napa, and Sonoma. Also hard-hit are Orange and San Diego counties.
According to Covered California, 13 carriers are participating in the stateâ€™s exchange, including Anthem Blue Cross (NYSE:WLP), Health Net (NYSE:HNT), Molina (NYSE:MOH), and Kaiser Permanente. So far, UnitedHealthCare (NYSE:UNH) and Aetna (NYSE:AET) have stayed out.
Spinning a public-relations disaster
Itâ€™s great that Covered California released this early the rates that insurers plan to charge on the exchange, as it gives us an early window into how the exchanges will work in a state that has an unusually competitive and inexpensive individual market for health insurance. But thatâ€™s the irony. The full rate report is subtitled â€œMaking the Individual Market in California Affordable.â€ But Obamacare has actually doubled individual-market premiums in the Golden State.
How did Lee and his colleagues explain the sleight-of-hand they used to make it seem like they were bringing prices down, instead of up? â€œIt is difficult to make a direct comparison of these rates to existing premiums in the commercial individual market,â€ Covered California explained in last weekâ€™s press release, â€œbecause in 2014, there will be new standard benefit designs under the Affordable Care Act.â€ Thatâ€™s a polite way of saying that Obamacareâ€™s mandates and regulations will drive up the cost of premiums in the individual market for health insurance.
But rather than acknowledge that truth, the agency decided to ignore it completely, instead comparing Obamacare-based insurance to a completely different type of insurance product, that bears no relevance to the actual costs that actual Californians face when they shop for coverage today. Peter Lee calls it a â€œhome run.â€ Itâ€™s more like hitting into a triple play.
Obama attacked insurers in 2010 for much smaller increases
That Obamacare more than doubles insurance premiums for many Californians is especially ironic, given the political posturing of the President and his administration in 2010. In February of that year, Anthem Blue Cross announced that some groups (but not the majority) would face premium increases of as much as 39 percent. The White House and its allies in the blogosphere, cynically, claimed that these increases were due to greedy profiteering by the insurers, instead of changes in the underlying costs of the insured population.
â€œThese extraordinary increases are up to 15 times faster than inflation and threaten to make health care unaffordable for hundreds of thousands of Californians, many of whom are already struggling to make ends meet in a difficult economy,â€ said Health and Human Services Secretary Kathleen Sebelius. â€œ[Anthemâ€™s] strong financial position makes these rate increases even more difficult to understand.â€ The then-Democratic Congress called hearings. Even California Insurance Commissioner Steve Poizner, a Republican running for governor, decided to launch an investigation.
Soon after, WellPoint announced that, in fact, because of lower revenues and higher spending on patient care, the company earned 11 percent less in 2010 than it did in 2009. So much for greedy profiteering.
So, to summarize: Supporters of Obamacare justified passage of the law because one insurer in California raised rates on some people by as much as 39 percent. But Obamacare itself more than doubles the cost of insurance on the individual market. I can understand why Democrats in California would want to mislead the public on this point. But journalists have a professional responsibility to check out the facts for themselves.