Thursday, June 20, 2013

Despite misleading headlines, CA exchange plans to increase individual premiums by 64-146% after you strip away subsidies and compare equivalent doctor networks

This is Avik Roy at Forbes:  
Last week, the state of California claimed that its version of Obamacare’s health insurance exchange would actually reduce premiums. “These rates are way below the worst-case gloom-and-doom scenarios we have heard,” boasted Peter Lee, executive director of the California exchange.
But the data that Lee released tells a different story: Obamacare, in fact, will increase individual-market premiums in California by as much as 146 percent.
Lee’s claims that there won’t be rate shock in California were repeated uncritically in some quarters. “Despite the political naysayers,” writes my Forbescolleague Rick Ungar, “the healthcare exchange concept appears to be working very well indeed in states like California.” A bit more analysis would have prevented Rick from falling for California’s sleight-of-hand.
Here’s what happened. Last week, Covered California—the name for the state’s Obamacare-compatible insurance exchange—released the rates that Californians will have to pay to enroll in the exchange. “The rates submitted to Covered California for the 2014 individual market,” the state said in a press release, “ranged from two percent above to 29 percent below the 2013 average premium for small employer plans in California’s most populous regions.”
That’s the sentence that led to all of the triumphant commentary from the left. “This is a home run for consumers in every region of California,” exulted Peter Lee.
Except that Lee was making a misleading comparison. He was comparing apples—the plans that Californians buy today for themselves in a robust individual market—and oranges—the highly regulated plans that small employers purchase for their workers as a group. The difference is critical.
Obamacare to double individual-market premiums
If you’re a 25 year old male non-smoker, buying insurance for yourself, the cheapest plan on Obamacare’s exchanges is the catastrophic plan, which costs an average of $184 a month. (That’s the median monthly premium across California’s 19 insurance rating regions.)
The next cheapest plan, the “bronze” comprehensive plan, costs $205 a month. But in 2013, on (NASDAQ:EHTH), the average cost of the five cheapest plans was only $92. In other words, for the average 25-year-old male non-smoking Californian, Obamacare will drive premiums up by between 100 and 123 percent.
Under Obamacare, only people under the age of 30 can participate in the slightly cheaper catastrophic plan. So if you’re 40, your cheapest option is the bronze plan. In California, the median price of a bronze plan for a 40-year-old male non-smoker will be $261. But on eHealthInsurance, the average cost of the five cheapest plans was $121. That is, Obamacare will increase individual-market premiums by an average of 116 percent.
For both 25-year-olds and 40-year-olds, then, Californians under Obamacare who buy insurance for themselves will see their insurance premiums double. ...
Then one of the largest insurers in California, Blue Shield, announced that their average rate increase would be 13% under the new law. That sure looks better than the predicted 30% increase for California exchange plans.
But wait, that Blue Shield exchange plan in LA, for example, does not include UCLA Medical Center or Cedars Sinai. In fact, Shield's exchange network includes a total of only 24,000 physicians compared to 66,000 doctors in their full PPO network––only 36% of their usual network docs will be available.  
Peter Suderman at Reason summarized the State's PR push as follows:  
But this good news is not as good as it might sound, because it’s based on a misleading comparison: next year’s individual market rates with this year’s small-employer plans. A more useful comparison would be with this year’s individual-market premiums. And what that comparison reveals is that rate shock is real, and that the hikes are far larger than the comparison with small-group rates would suggest.
Michael Cannon at CATO characterized the disinformation campaign as such:  
"Officials at Covered California, like those running all the other Obamacare exchanges, owe their power and their paychecks to Obamacare. They will fight to preserve the law, even if they have to deliberately mislead the public."   
To summarize, the "reasonable premium" increases publicized last week were based on the assumptions that:  
  • The individual applying would get a federal subsidy based on income; 
  • The benefits would not be the same as current plans; and 
  • The available list of participating doctors is greatly reduced. 
But thankfully, if you like your plan you can keep it.  Or so I've heard.