If You Like Your Obamacare Plan, It’ll Cost You

Consumers could be hit with major price increases, without even knowing it, if they don’t switch their health care plans.

US President Barack Obama speaks about the healthcare reform laws, known as Obamacare, at an Organizing for Action event in Washington, DC, November 4, 2013.  
National Journal
Sam Baker
Aug. 5, 2014, 1 a.m.

If you like your Obama­care plan, you can keep it — but you might end up pay­ing a whole lot more.

People who de­cide to stick with the cov­er­age they’ve already got­ten through Obama­care, rather than switch­ing plans, are at risk for some of the biggest premi­um spikes any­where in the sys­tem. And some people won’t even know their costs went up un­til they get a bill from the IRS.

In­sur­ance plans gen­er­ally raise their premi­ums every year, but those costs are just the tip of the ice­berg for mil­lions of Obama­care en­rollees. A series of oth­er, largely in­vis­ible factors will also push up many con­sumers’ premi­ums.

In some cases, even if an in­sur­ance com­pany doesn’t raise its rates at all, its cus­tom­ers could still end up ow­ing thou­sands of dol­lars more for their premi­ums. It’s all a byproduct of com­plic­ated tech­nic­al changes triggered, iron­ic­ally enough, by the law’s suc­cess at bol­ster­ing com­pet­i­tion among in­surers.

Many con­sumers will need to switch plans in or­der to keep their costs steady, but health care ex­perts ques­tion how many people will do that. Switch­ing plans can en­tail chan­ging your doc­tor and ad­just­ing to new out-of-pock­et costs, nev­er mind the fresh trek through Health­Care.gov. The White House has already set up an auto-re­new­al pro­cess, mak­ing it easi­er to stick with the status quo.

And with so many be­hind-the-scenes factors at play, most people might not even know that they need to go back through Health­Care.gov just to keep the deal they already have.

“A lot of people aren’t go­ing to un­der­stand this,” said Susan Pan­tely, an ac­tu­ary at the Mil­li­man con­sult­ing firm.

Hid­den cost of do­ing noth­ing

Let’s break down the com­plex factors that make in­er­tia so ex­pens­ive for Obama­care en­rollees.

First, there are the stand­ard premi­um in­creases in­surers seek from year to year. The low­est-cost plans in each state’s mar­ket­place were gen­er­ally the ones that at­trac­ted the most cus­tom­ers in 2014. But in many cases, they’re also the plans seek­ing above-av­er­age rate hikes.

“The prices of the low­est-cost [plans] tend to be go­ing up more,” said Car­oline Pear­son, vice pres­id­ent at the con­sult­ing firm Avalere Health. “Most people, if re-en­rolled, will be en­rolled in a plan that has a premi­um in­crease.”

But that’s only part of the reas­on in­er­tia is so ex­pens­ive for Obama­care en­rollees. The vast ma­jor­ity of en­rollees don’t pay the full cost of their premi­ums — 85 per­cent are get­ting fin­an­cial help from the gov­ern­ment. And many of those con­sumers will find that their sub­sidies don’t go as far next year, even for the same plans.

The size of each per­son’s sub­sidy is tied to a “bench­mark” plan. Poorer con­sumers only have to spend a cer­tain per­cent­age of their in­come for that plan; the gov­ern­ment pays the rest of the premi­um. If you choose a more ex­pens­ive policy, you have to pay the dif­fer­ence on your own.

This year, about 3.4 mil­lion people picked the bench­mark plan or went one op­tion cheap­er. But as those plans raise their rates and new op­tions come to the mar­ket, they’ll of­ten lose their bench­mark status to cheap­er com­pet­it­ors — and their cus­tom­ers will find them­selves on the hook for a big­ger share of their premi­ums.

“I would ex­pect that prob­ably the ma­jor­ity of 2014 en­rollees are go­ing to be im­pacted pretty sub­stan­tially,” said Mil­li­man ana­lyst Paul Houchens.

Let’s say your in­come is at about 150 per­cent of the poverty line — roughly $17,000 per year. The law says you don’t have to pay more than 4 per­cent of your in­come for the bench­mark plan in your area. You chose that plan this year, and you’re get­ting a pretty gen­er­ous sub­sidy.

Your plan wants to raise its rates by 5 per­cent next year — not great, but not the end of the world when you’re only pay­ing about $50 per month out of your pock­et. You like the plan, the premi­um in­crease doesn’t seem like a lot, and Health­Care.gov was a head­ache last time, so you just auto-re­new.

Un­be­knownst to you, though, new in­surers have star­ted of­fer­ing cheap­er plans in your area. Your plan is no longer the bench­mark plan; a cheap­er one is. So now your sub­sidy is based on the cost of that plan, not the one you have. This means you’re on the hook not only for every dol­lar of your plan’s 5 per­cent premi­um in­crease, but also for every dol­lar of the dif­fer­ence in price between your plan and the new bench­mark plan.

These tech­nic­al changes in sub­sidies could turn a 5 per­cent premi­um in­crease in­to a spike of 30 to 100 per­cent in the net costs for low-in­come con­sumers, ac­cord­ing to a re­cent Mil­li­am ana­lys­is.

There’s already evid­ence this is hap­pen­ing: In an Avalere Health sur­vey of nine states, the bench­mark plan will change next year in six of them. The low­est-cost plan will change in sev­en of the nine states.

‘The totally crazy part’

As cheap­er plans come in­to the mar­ket­place, mil­lions of con­sumers will see the cost of keep­ing their plan rise. But they might not know it.

Health­Care.gov isn’t able to auto­mat­ic­ally re­cal­cu­late the sub­sidies ex­ist­ing con­sumers are eli­gible for. So, while the dol­lar value of your fin­an­cial as­sist­ance drops, you can only find out that’s hap­pen­ing by go­ing back in­to the sys­tem and ask­ing for a re­de­ter­min­a­tion as part of the shop­ping pro­cess.

Con­sumers who auto-re­new their policies will get the same dol­lar value of sub­sidies they got last year — even though changes in the mar­ket­place all but guar­an­tee that will no longer be the right sub­sidy amount for mil­lions of people.

“That’s the totally crazy part,” Pear­son said. “They’re ba­sic­ally go­ing to send them what they know to be the wrong sub­sidy.”

The IRS will even­tu­ally fig­ure out how much fin­an­cial as­sist­ance you should have re­ceived, and will re­con­cile the dif­fer­ence on your taxes. If you should have got­ten a big­ger sub­sidy, the gov­ern­ment will is­sue you a tax cred­it. If your sub­sidy was too big, which would be the case if you keep your plan and lower-cost op­tions come to the mar­ket, you’ll owe the IRS money.

Mil­li­man has this ex­ample: Your plan doesn’t change its premi­ums at all, and your in­come isn’t chan­ging. You auto-re­new and keep re­ceiv­ing the same sub­sidy. But be­cause of changes in the bench­mark plan, you shouldn’t ac­tu­ally be re­ceiv­ing the same sub­sidy. Al­though it seems to you like noth­ing changed — not your premi­um, not your in­come — you’ll owe the IRS between $300 and $2,500 when you pay your taxes, be­cause your sub­sidy should have been smal­ler. Un­less and un­til Health­Care.gov is able to do this math auto­mat­ic­ally, it’s up to you to fig­ure that out.

“We get in­to a very dan­ger­ous situ­ation if we just tell every­body they can just auto-en­roll,” Houchens said.

It pays to shop

Again, all of this is avoid­able. These are the risks of auto-re­new­al. Any­one who goes back in to Health­Care.gov to get a new eli­gib­il­ity de­term­in­a­tion will see their up­dated sub­sidy as well as the cur­rent list of avail­able plans.

If you’ve been on the bench­mark plan and you switch to the new bench­mark plan, your costs will stay ex­actly the same, be­cause the sub­sidies work by cap­ping how much of your in­come you’ll have to spend for that plan. Or maybe con­sumers will de­cide it’s worth the ex­tra money to stick with the plan they have, but will get the ad­vant­age of know­ing about those costs up front, rather than be­ing hit with a tax bill.

Con­sumers are “largely pro­tec­ted if they’re will­ing to switch plans,” said Larry Levitt, vice pres­id­ent of spe­cial ini­ti­at­ives at the Kais­er Fam­ily Found­a­tion.

But will they be will­ing to switch?

Ex­per­i­ence with Medi­care’s pre­scrip­tion-drug be­ne­fit sug­gests not. Once seni­ors pick a drug plan, they’re un­likely to reenter the mar­ket­place and shop around again, even if there’s a plan that might work bet­ter for them, Levitt said. The same is true of the in­sur­ance ex­change that serves fed­er­al em­ploy­ees — people rarely switch.

“There are lots of reas­ons to be­lieve in­er­tia will take hold here and people won’t switch,” Levitt said. “Bet­ting on in­er­tia is cer­tainly a reas­on­able bet here.”

But Levitt also said the Obama­care ex­changes might be dif­fer­ent. Most of the people who signed up for cov­er­age this year were pre­vi­ously un­in­sured, so they prob­ably haven’t got­ten too at­tached to a spe­cif­ic doc­tor yet. They likely wouldn’t feel like they’re los­ing a lot by switch­ing to a cheap­er policy, Levitt said. And the way people shopped this year in­dic­ated that they’re es­pe­cially price-con­scious.

“I think people may shop around more than they have in the past,” he said.

Com­plic­at­ing all of this is the auto-re­new­al pro­cess the ad­min­is­tra­tion has set up. The ad­min­is­tra­tion is in a tough spot on auto-re­new­al — it wants to keep as many of this year’s 8 mil­lion sign-ups as pos­sible, but it also wants to keep real-world premi­um in­creases in check.

“It’s a really tough bal­ance. You don’t want people to end up un­in­sured, so you want to make re­new­al as easy as pos­sible, but (you) also want to make sure people un­der­stand they have oth­er op­tions,” Levitt said. “Auto-re­new­ing people is not a crazy idea, but how well that works will de­pend a lot on the com­mu­nic­a­tion that goes out to people.”

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