Everything You Know About Obamacare Premiums Is Wrong

Neither party’s spin will work for the law’s next challenges.

In this handout provided by the White House, U.S. President Barack Obama throws a football at Soldier Field following the NATO Summit working dinner on May 20, 2012 in Chicago, Illinois. As sixty heads of state converge for the two day summit that will address the situation in Afghanistan among other global defense issues, thousands of demonstrators have taken the streets to protest. (Photo by Pete Souza/The White House via Getty Images)
National Journal
Sam Baker
April 30, 2014, noon

Dear Re­pub­lic­ans and Demo­crats: Burn your Obama­care play­book.

With the first year of open en­roll­ment fin­ished, the next big ques­tion about the Af­ford­able Care Act is how it will look en­ter­ing Year Two. Spe­cific­ally, what will hap­pen to the premi­ums people pay for health plans they bought through the law’s in­sur­ance ex­changes?

Wash­ing­ton already went through that premi­um ar­gu­ment dur­ing Obama­care Year One, and it was ter­rible — at least for those in­ter­ested in any­thing close to an hon­est de­bate.

Mak­ing an apples-to-apples com­par­is­on of people’s pre- and post-Obama­care premi­um costs was all but im­possible, even be­fore those ef­forts were blown aside by wildly ex­ag­ger­ated claims based on little to no evid­ence.

Both sides will no doubt trot out the same claims for 2015, but this time around, there’s an an­ti­dote: When rate fil­ings be­gin to trickle out over the sum­mer, there will be real data to help cut through the non­sense.

That’s a risky pro­pos­i­tion for both sides of the Obama­care de­bate.

In the spin wars over 2014 premi­ums, Demo­crats and Re­pub­lic­ans both got a lot of mileage out of un­cer­tainty. These were new plans, be­ing offered for the first time, bound by a new reg­u­lat­ory scheme, and sold through new mar­ket­places. And there wasn’t much good in­form­a­tion about the plans that were avail­able on the in­di­vidu­al mar­ket pre-Obama­care

All of that new­ness made it harder to com­pare pre- and post-Obama­care premi­ums, which in turn made it easi­er for crit­ics — of­ten abet­ted by head­line writers — to paint a severely dis­tor­ted pic­ture of what was hap­pen­ing.

Apples to apples

For ex­ample, Ohio’s Re­pub­lic­an lieu­ten­ant gov­ernor warned of massive premi­um hikes in 2014 — by com­par­ing Obama­care policies to a plan that was only avail­able to young, healthy men, car­ried up to $25,000 in out-of-pock­et costs (ex­change plans cap out-of-pock­et spend­ing at $6,500), and would not cov­er a whole range of ser­vices, in­clud­ing some straight­for­ward doc­tor vis­its.

That’s plainly not a fair com­par­is­on. Sure, people on that bare-bones plan would see their premi­ums rise, but Ohio’s es­tim­ate wasn’t based on the cost of a plan com­par­able to the policies in the state’s ex­change, or the most pop­u­lar in­di­vidu­al plan in the state, or an av­er­age in­di­vidu­al plan. It was a polit­ic­al state­ment mas­quer­ad­ing as math, and the vague­ness of the pre-Obama­care mar­ket made it easi­er to get away with.

Sim­il­arly, Wis­con­sin Gov. Scott Walk­er’s of­fice re­leased an “es­tim­ate” around rate-fil­ing time last year pre­dict­ing massive premi­um hikes for 2014. But it wouldn’t say how much it ex­pec­ted plans to cost, in dol­lars, or what they cost pre-Obama­care — the two num­bers you’d need in or­der to know how much premi­ums were go­ing to in­crease.

That form of dis­tor­tion won’t be avail­able for 2015 premi­ums, be­cause we’ll be com­par­ing the same plans from one year to the next. Most states have re­leased real, de­tailed data about the plans sold through their ex­changes, so journ­al­ists and ana­lysts look­ing for a real com­par­is­on will have sol­id in­form­a­tion to work from. That wasn’t the case for 2014.

Crit­ics (and form­al rate fil­ings) also rarely factor in the law’s tax sub­sidies, which help low-in­come house­holds cov­er their premi­ums. About 80 per­cent of en­rollees are re­ceiv­ing fin­an­cial as­sist­ance, so most people’s costs aren’t as high as the premi­ums that in­surers file.

No more ex­cuses

More hard data isn’t ne­ces­sar­ily a good thing for the White House. The ad­min­is­tra­tion and its al­lies have been able to fall back on the same murk­i­ness about the pre-Obama­care mar­ket — the lack of clear, ag­greg­ate in­form­a­tion about in­di­vidu­al plans’ de­duct­ibles, cov­er­age lim­its, and avail­ab­il­ity to people who were not 25-year-old men.

When Cali­for­nia re­leased the rates for its ex­change plans, it tried to make the num­bers look bet­ter by com­par­ing them to the av­er­age cost of plans sold to small busi­nesses — a dif­fer­ent part of the in­sur­ance mar­ket.

State of­fi­cials said small-busi­ness plans were more com­par­able to the be­ne­fit levels in Obama­care’s in­di­vidu­al policies. Which is true, but also sort of like telling someone they have to trade in their Camry for a Lex­us, but not to worry be­cause the Lex­us is a good deal com­pared to a BMW.

For all the gap­ing flaws in ana­lyses like Ohio’s, the law’s crit­ics were (and still are) cor­rect about the fun­da­ment­al trade-off in in­sur­ance premi­ums: More be­ne­fit man­dates and cov­er­age guar­an­tees make plans more ex­pens­ive, par­tic­u­larly for young people. And it’s not as if every pre-Obama­care plan came with a $25,000 de­duct­ible.

Crit­ics’ big play last year was to come up with un­real­ist­ic com­par­is­ons that made things look worse than they really were. The ad­min­is­tra­tion’s re­sponse was to say that no one could really tell how much premi­ums were go­ing up, be­cause in­form­a­tion about the plans people had be­fore was so in­com­plete and plans var­ied so widely. There was a lot of truth to that, but there won’t be next time, when we’re com­par­ing the same plans across two years.

And while crit­ics over­looked the law’s tax sub­sidies, rising premi­ums are still rising premi­ums. The tax cred­its are pegged to the cost of in­sur­ance — so the cost to tax­pay­ers rises along with premi­ums — and also to house­hold in­come, so all but the poorest fam­il­ies would still see their costs rise.

Keep it in con­text

Sadly, some tools of dis­tor­tion re­main avail­able in year two. One big thing to look out for: Read­ing too much in­to one data point.

There is no na­tion­al premi­um, or even one premi­um for each state. Premi­ums vary by re­gion with­in each state, and can also vary based on in­di­vidu­al con­sumers’ age and smoking status. So when in­surers’ 2015 rates start to emerge, the vari­ations will be pretty big. One plan in one re­gion with­in one state could eas­ily see a huge jump, while the av­er­age in­crease across the state over­all re­mains mod­est. Or vice versa.

To use an­oth­er ex­ample from the 2014 premi­um wars: When Mary­land re­leased its Obama­care rates, the state’s spin was that premi­ums were 50 per­cent lower than what in­surers had ini­tially wanted. Crit­ics pre­ferred The Bal­timore Sun‘s head­line: “Premi­ums to go up as much as 25 per­cent un­der health re­form.” They were both right.

One car­ri­er — An­them — did file premi­ums 25 per­cent high­er than what it charged for its pre-Obama­care plan in the state. So people who had An­them, and chose to keep it, would pay 25 per­cent more, not count­ing any sub­sidies they might re­ceive.

An­them had about 3,300 cus­tom­ers in Mary­land at the time of its rate fil­ing, close to the num­ber of people en­rolled in the Kais­er Found­a­tion’s in­di­vidu­al plan, which saw a 1 per­cent drop in premi­ums in the trans­ition to Obama­care. In oth­er words, roughly the same num­ber of people faced a 25 per­cent in­crease as faced a 1 per­cent de­crease. And all of them were free to choose a dif­fer­ent plan. So neither of those res­ults — the really bad one or the really good one — told the full story.

No one num­ber ever does.

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