Maggie Mahar Healthbeat Blog: Reverse “ Sticker Shock”— Why are Insurance Rates in the State Marketplaces Lower Than Expected? — Part I

Even Forbes’ columnist Avik Roy is recanting. Earlier this month he acknowledged that under Obamacare, many Americans who buy their own coverage in 2014 will find that insurance is significantly more affordable than it was in the past: “Three states will see meaningful declines in rates: Colorado (34 percent), Ohio (30 percent), and New York (27 percent).”


Colorado, Ohio and New York are not unique. As states announce the prices that carriers will be charging in the online marketplaces (or “Exchanges”) where Americans who don’t have health benefits rate at work will be purchasing their own coverage, jaws are dropping. Rates are coming down, not only for those individuals, but for some small business owners who will be buying insurance for their employees in separate SHOP (Small Business Health Options Program) Exchanges.


What may be most surprising is that premiums will be lower, not only in liberal Blue states but in some Red states that are opposed to Obamacare.


What is making health insurance more affordable?


First, the majority of individuals shopping in the Exchanges will be eligible for government subsidies that will go a long way toward covering premiums. In the past I have written about how these tax credits will help young adults (18-34). But older Americans also will benefit. Fully 30% of those who receive tax credits will be 35-54, and 12.5% will be 55 or older. This is important because in the Exchanges, insurers in every state except New York and Vermont will be allowed to charge a 60-year-old three times as much as they would charge a 20-year-old for exactly the same policy. Without subsidies many would find insurance totally unaffordable.


The second reason premiums are significantly lower than expected is that as I have explained on healthinsurance.org in the state marketplaces insurers are forced to compete on price. All policies sold in the Exchanges must cover the same essential benefits, and follow other rules that will make the plans look very much alike. The only way for a carrier to distinguish himself from the crowd will be to charge less—or have a better network of providers. But the younger customers that carriers covet care far more about price than about the network.


Third, in many cases, state regulators have been clamping down. In Portland Oregon, for example, regulators forced insurers to cut their proposed rates by an average of nearly 10%. Three of the 12 insurance companies in that market had to lower their rates by more than 20% f


Finally, rates in many Exchanges are looking surprisingly affordable because many insurers are narrowing their networks to a group of hospitals and doctors who will offer higher-quality care for less. Meanwhile the fear-mongers argue that this means patients won’t receive the care they need.


Indeed, the New York Times just published an article suggesting that patients with complicated medical problems may have a hard time finding providers within an insurer’s network who can treat their problems.


What the Times neglected to mention is that the Obama administration had anticipated the possibility that a network could be too narrow and has already addressed the issue. As Modern Healthcare.com reports, “last year, the administration issued a rule” that insurers “must maintain a network of a sufficient number and type of providers … to assure that all services will be available without unreasonable delay.” The rule also requires that “essential community providers” be included in all plans.


This is an important fact. It is not clear why the Times ignored it.


Modern Healthcare.com goes on to quote Dr. Jeff Rideout, senior medical adviser for the Covered California state exchange, stressing that “all plans included in the exchange have to get state and federal regulatory approval for network adequacy.”


But will the in-network providers be as good as those who balk at the notion of charging less than top dollar? Study after study shows that there is little correlation between higher prices and better care. In fact, lower costs and higher quality go hand in hand: when more efficient hospitals co-ordinate care there are fewer “medical misadventures,” hospital stays are shorter; and both patient and doctor satisfaction is higher.


In the 1990s, HMOs that asked that t patients stay “in network” fell out of favor. But today, when Consumer Reports publishes NCQA ratings on quality of care as well as consumer satisfaction, it turns that that HMOs that rely on “networks” outrank other insurers. Networks that coordinate care are the future of medicine.


Ohio—In September the Truth Finally Emerged


Ohio serves a striking case study of “reverse sticker shock.”


Before next year’s rates for individuals buying their own insurance were announced, many Red state officials had warned that prices would spiral. In June, for example, Ohio Lt. Gov. Mary Taylor, a Republican who heads the state’s insurance department, took fear-mongering to a new level by announcing that in 2014, the average cost of coverage would rise by an estimated 88 percent. l


Two months later, when Taylor’s department disclosed the actual premiums that insurers will be charging in Ohio’s marketplace, reality forced her to amend her estimate. Nevertheless, she still insisted that in 2014, premiums for individuals will be a whopping 41 percent higher than they were this year. Republican House Speaker John Boehner then picked up his megaphone, calling her announcement “irrefutable evidence” that Obamacare will hurt the economy as it drives up costs.


The Cleveland Plain Dealer wasn’t buying any of this. Reporting on Taylor’s revised numbers, it immediately observed that her statement “masks the fact that for many individuals, premiums and out-of-pocket medical expenses will go down” because the vast majority of Americans buying their own insurance in the state exchanges “will be eligible for income-based federal subsidies to reduce or eliminate their costs.” (It would be difficult to accuse the Plain Dealer of liberal bias. In 2012, the paper endorsed Mitt Romney for president.)


The paper then pointed to a second flaw in Taylor’s reasoning. When she compared the average cost of insurance to 2013 to the average cost of 2014 policies, she included bare-bones plans sold in 2013 that “require deductibles of $10,000 or more and offer only catastrophic coverage.”


This distorts the comparison between 2013 and 2014 prices in two ways:


1) All of the plans sold in the Exchanges in 2014 will offer far better protection and much lower deductibles than the bargain basement plans Taylor used in her comparison. She was comparing apples to rotten apples.


2) More importantly, as the Plain Dealer went on to explain, even in 2013 “relatively few people bought these plans (because of super-high deductibles and crummy coverage).” In other words, in order to draw a fair comparison between “average” prices in 2013 and 2014, one needs to look at the plans that most people purchase.


By September Forbes columnist Avik Roy, a senior fellow at the conservative-leaning Manhattan Institute for Policy Research agreed: rates in Ohio would plunge.


In June, Roy had trumpeted Taylor’s projections that healthcare reform would lift rates in Ohio’s state marketplaces by 88%. But as states announced the premiums they had approved, Roy and his team re-crunched the numbers, and acknowledged: “rates on average will go down for Ohioans” by “30 percent. . . even before even considering the effect of subsidies.” /


Let me be clear: Roy continues to claim that most Americans buying their own coverage will see their premiums rise in 2014. On that point, he still is wrong: in his state-by-state analysis of rates, he doesn’t include the impact of the subsidies.


But a policy’s “sticker price” won’t matter to someone purchasing insurance in the state marketplaces. What will matter is what he actually has to lay out, after applying his tax credit. That will determine whether he believes that the “Patient Protection and Affordable Care Act” is actually offering affordable insurance.


(Keep in mind that most people shopping for insurance in the Exchanges live in low-income and median-income households– and thus are eligible for subsidies. More affluent Americans are far more likely to work for employers who offer good health benefits– or to have coverage through a spouse or a parent. The Exchanges will not be open to them because an employer already subsidizes their insurance.)


Still, I greatly respect Roy’s honesty regarding Ohio. In these polarized times, retractions have become rare, even in highly-respected publications. A hat-tip to Roy and to Forbes.


Maggie Mahar Healthbeat Blog





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