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

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.”