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Untangling Obamacare: The affordability puzzle

Untangling Obamacare: The affordability puzzle

EDITOR'S NOTE: This article orginally ran in the Columbia Journalism Review.  We have published it with permission for ReportingOnHealth.org readers.

It’s time to move beyond the wonk studies that showed up all summer, which concluded that maybe the much-awaited rate shock (for insurance premiums on the state exchanges) is not in the cards. Reports from the consulting firm Avalere Health, the Robert Wood Johnson Foundation, RAND Corp., and Kaiser Family Foundation have fueled the notion that premiums next year will be cheaper than they are now (as low as $91 a month in Minnesota for young healthy guys who don’t smoke).

The premiums-will-be-lower narrative—pushed along by press coverage of state exchange announcements—may well encourage young healthy guys to cough up the dough and buy insurance. The Obama administration, supporters of the Affordable Care Act, and the insurance industry say that must happen for the law to realize its central goal of covering more people—including the sickest of the sick—in the country’s individual market. But can a middle class family with a couple of kids and just scraping by afford the premiums—whatever they are—even if they get government help?

Kaiser’s study, the latest of the bunch, debuted a couple weeks ago and got respectable play with media outlets and with bloggers on the left and right spinning the results as they saw fit. After studying 17 states plus the District of Columbia, Kaiser found:

While premiums will vary significantly across the country, they are generally lower than expected. For example, we estimate that the latest projections from the Congressional Budget Office imply that the premium for a 40-year-old in the second lowest cost silver plan would average $320 per month nationally. Fifteen of the eighteen rating areas we examined have premiums below this level.

The Hill trumpeted this finding of “lower than expected” premiums from “a leading health policy research organization.” Slate’s Matthew Yglesias called it “good news” for Americans who are now uninsured, must buy in the individual market, or will be out of a job someday and need individual coverage. Talking Points Memo reported Kaiser’s study could be “a big blow to one of the main conservative talking points against the Affordable Care Act: rate shock.” There were voices of caution, such as NPR’s Julie Rovner, who tweeted, “I am declaring a moratorium on all premium rate studies until we get rates for the rest of the states,” and from the conservative press which, of course, has its own agenda.

Avik Roy, a senior fellow at the Manhattan Institute, tore into Kaiser’s study in his National Review column, making the all-important and relevant point when it comes to whether insurance premiums on the exchanges will be higher or lower than what people now pay for individual market coverage: They are not the same policies, as we’ve often reported. The new policies have more comprehensive benefits than some of the older policies, and when it comes to insurance policies, the more benefits, the more they cost. At the same time, the cheapie policies may have a big drawback; they may offer a limited choice of providers in return for the low price tag (see this good LA Times piece on that). Kaiser handled the apples-to-oranges comparison by saying that evaluating this year’s policies with the new ones would be complicated. Yes, it would be. So instead, as Roy put it, Kaiser compared 2014 premiums to those the Congressional Budget Office projected for 2016. Roy summed up this thinking:

If care today costs $10,000, and the CBO predicts the same care will cost $15,000 next year, next year’s price is “lower than expected” if the price only goes up by 40 percent, instead of the predicted 50 percent.

It’s time to get real about how affordable insurance will be in the exchanges—not just for the young turks, the prize catch for the insurance jungle—but for everyone else. The average man or woman on the street who needs insurance doesn’t care one whit what the Congressional Budget Office or Avalere Health or Kaiser have to say about premiums. They don’t care about the prognostications of bloggers on the left or right. They will decide to buy or not buy based on their pocketbooks, a point that’s been grievously overlooked in the media rush to report the spin from insurance departments or from policy wonks who have pretty much tried to downplay any hint that insurance might be costly in the exchanges, which it will be for millions who want decent coverage. By that I mean a gold plan, the old Blue Cross model that historically has provided decent coverage for Americans, paying 80 percent of an individual or family’s medical costs and offering a good choice of doctors and hospitals. After all, wasn’t choice one of the battle cries during the debate over Obamacare?

Instead, government and media focus has been on the bronze variety that covers just 60 percent of medical costs or the second-lowest cost silver plan on which subsidies are based and covers 70 percent of medical costs. Even with limits on out-of-pocket expenses ($6,350 and $12,700 in 2014, a provision delayed until 2015), families in the middle face substantial costs for health insurance. It seems that when you count subsidies, a.k.a. tax credits, families will get for buying insurance, those at the low end of the income ladder (but not the lowest in states not expanding Medicaid) will do okay, but those in the middle may think twice about buying coverage. In a recent Washington Post Wonkblog post, Sarah Kliff, questioned whether premiums would be affordable—putting that query to Kaiser senior vice president, Larry Levitt. “I don’t know,” he admitted.

“On the one hand, all the cry about rate shock may be unfounded,” Levitt continued. “On the other, we’re still talking about a pretty significant purchase. Unless you’ve had to go out and buy insurance, you have no idea what it’s supposed to cost or whether it’s a good deal."

In a bulletin to clients, insurance consultant Robert Laszewski suggests buying a policy may not be such a good deal for many families. Using numbers from Covered California, California’s exchange, he shows that a family of four making $59,000, a bit more than the median income, could expect to pay $4,739 for a policy after subsidies are applied—about 10 percent of their take-home pay. That would buy the second lowest-priced silver plan with a $2,000 deductible and a cap of $12,700 on out-of-pocket expenses. He writes:

For so many individuals and families 10% of their take home income is a huge issue. This is the marginal income left at the end of the month, after taxes, rent, and car payments that is so critically important to them. The dirty little secret for Obamacare is that the subsidies aren’t enough to assure us that we will attract a good cross section of risk.

He means: Will middle income and potentially healthy families judge the policies of sufficient value to spend their walking around money on? Will they jump into the risk pool? It’s wishful thinking that subsidies will get larger any time soon. The story is the decisions people are making, not the latest study from another policy shop.

Image by INTVGene via Flickr

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