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.”