A few days ago, the guy who is a big supporter of Obamacare came out and gushed about how much the law was going to drop rates in the Golden State:
As Jonathan Cohn of The New Republic correctly points out—
“One reason for the misplaced expectations may be that actuaries have been making worst-case assumptions, even as insurers—eyeing the prospects of so many new customers—have been calculating that it’s worth bidding low in order to gobble up market share. This would help explain why premium bids in several other states have proven similarly reasonable. “The premiums and participation in California, Oregon, Washingtonand other states show that insurers want to compete for the new enrollees in this market,” Gary Claxton, a vice president at the Kaiser Family Foundation, said via e-mail. “The premiums have not skyrocketed and the insurers that serve this market now are continuing. The rates look like what we would expect for decent coverage offered to a standard population.”
Cohn is saying that, despite the political naysayers, the healthcare exchange concept appears to be working very well indeed in states like California, Oregon and Washington—the first states to publish the expected health exchange prices for purchasing coverage. These are also states that are actually committed to seeing the program work as opposed to those states whose leaders have a vested political interest in seeing the Affordable Care Act fail.
Keep in mind that the entire idea of the exchanges is to require health insurance companies to compete openly with one another by offering identical coverage programs in the three created classes—each offering insurance coverage that actually delivers meaningful protection to customers—and then openly disclosing the price each insurance company will charge for that policy. Thus, shoppers can clearly see which company has the best price on an apples-to-apples basis.
Today, a different writer from the same magazine sees things a bit differently:
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.
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. (By “average,” I mean the median monthly premium across California’s 19 insurance rating regions.)
In other words, for the typical 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 median cost of the five cheapest plans was $121. That is, Obamacare will increase individual-market premiums by an average of 116 percent.
So which is it? Are premiums for most going to rise significantly, or will they drop?
I often try and point out that the truth lies somewhere in the middle. I'm guessing that people will interpret what they want to believe from these stories. Those on the Left will say the first report is spot on, and those on the Right will gravitate towards the second article.
If I lived in California, regardless of political affiliation, I'd plan for the worst, and hope for the best. Set aside a few extra bucks, just in case the second report is the correct one, and if that comes to pass, you are ready. If not, hey, you have a few extra bucks to play with.
We'll see what happens, and I'm guessing the final outcome will look more like the second article.