Monday, May 05, 2014

Don't deny ACA-driven rate-shock. Do put it in perspective

Most Obamacare horror stories trumpeted by Americans for Prosperity, Fox News et al did not hold up to scrutiny because the protagonists turned out to be eligible for subsidies. The law's enemies wanted real hardship cases, and even modest affluence apparently takes the edge off for propagandists.

That sloppiness has made it relatively easy for some of the law's supporters, including Paul Krugman (see update #7 here), to gloss over the substantial price hikes suffered by those who 1) are in the individual market for a relatively long haul, 2) earn too much to qualify for ACA subsidies, and 3) do not have a pre-existing condition or a family member who has one.

eHealth, the nation's best-known online health insurance broker pre-ACA, has published statistics indicating the extent of  premium price hikes for the unsubsidized under the ACA. The latest snapshot is based on 213,000 insurance applications completed on eHealth during the ACA's first open enrollment period, from October 2013 through March 2014;  a 2013 baseline is published here.   According to eHealth's most recent stats, the average individual plan premium rose from $197 in 2013 to $271 in 2014, a 38% increase. The average family plan rose from $426 to $667, a 57% hike.

The larger jump in family plan premiums is partly explained by a larger reduction in average deductibles, which shrank from $10,568 in 2013 to $7,771 in 2014 (that's for the whole family; each individual would have a smaller deducible). The average individual plan deductible fell less dramatically, from $4,900 to $4,164.  As open season wore on, eHealth customer trended toward lower premiums and higher deductibles.

eHealth's offerings include plans offered off-exchange only and exclude some plans offered on-exchange. Off-exchange plans are exempt from some rules applying to on-exchange plans, but the differences are minor. The company's customer base is probably a reasonable proxy for the off-exchange individual market post-ACA.  Even if not, the year-over-year price change reflected in eHealth's sales reflects market realities.

Where the price hike comes from

ACA supporters often claim that unsubsidized buyers in the individual market are paying more because they're getting essential benefits that were often excluded from pre-ACA plans. But that's only partly true. It's true that many pre-ACA plans excluded benefits now deemed essential, such as coverage for mental health or childbirth or prescription drugs.  It's also true that many individual market veterans are now forced to buy coverages they don't want -- e.g., for said childbirth or mental health.

More to the point, though, the chief driver of premium hikes under the ACA is not the mandated benefits, nor new limits on the extent to which older buyers can be charged more than younger ones, but rather  "guaranteed issue" -- that is, the ACA's ban on basing the price (or availability) of insurance on the buyer's medical history and current health. According to an analysis prepared for the State of California by the benefits consultant Milliman in March 2013, ACA-mandated benefits would add an estimated 4.8% to insurance premiums in 2014.* Guaranteed issue would add 26.5%.

Who pays more under the ACA?

Those subject to ACA 'rate shock' are far outnumbered by the ACA's beneficiaries, but their ranks are still substantial. According to various estimates, 10-14 million people were insured in the pre-ACA individual market. According to an Urban Institute estimate, slightly more than half of 12 million qualified for ACA subsidies. Of the subsidy-ineligible now in the market, somewhere between 20 and 50 percent probably have a family member with a pre-existing condition -- and maybe more.** It may be fair to say, then, that somewhere between 2 million and 5 million people are paying more for insurance under the ACA than  they would have had the law not taken effect.

Viewed from another perspective, the CBO projects that 25 million people will buy health insurance on the ACA exchanges in 2018, 20 million of them subsidy-eligible. CBO further projects that an additional 5 million will buy insurance off-exchange in the individual market. Another 13 million will be covered thanks to the ACA Medicaid expansion. At present, about 3 million adults aged 21-26 remain insured through their parent's plans thanks to the law.  If we postulate that 30% of the ten million unsubsidized insureds in the individual market in 2018 have a plan member with a pre-existing condition, there might be 7 million paying more for individual market insurance in 2018 than they would have with no ACA, versus perhaps 36 million direct beneficiaries of the law.

It should be added that most people in the individual market stay there for very short periods -- and that a person paying more now than she would have pre-ACA may pay less in a future foray into the market, if she develops a condition that would have raised her rates or left her uninsurable under the old rules. On that front, keep in mind that the very large percentage of Americans with pre-existing conditions would be much larger if you considered every individual's medical status across their lifetime, up to age 65 (and no one questions guaranteed issue for Medicare). The restructuring buys everyone certainty that they won't be shut out of the market entirely -- though a healthy single self-employed 60 year-old earning $47,000 a year might dispute the "affordability" claim, as the cheapest bronze plan might cost him about $400 a month. 

* Milliman also estimated that the ACA's rules governing plans' actuarial values -- the percent of the average plan member's annual costs to be covered by the plan -- would drive premiums up 11.4%. But that hike would be due in large part to ACA incentives to those earning less than 250% of the Federal Poverty Level to purchase silver plans, which have an actuarial value of 70%. As eHealth's stats indicate, a much higher percentage of the unsubsidized than of the subsidized opted for bronze plans, with an actuarial value of 60%, which is closer to the pre-ACA norm 47% of eHealth customers selected bronze and just 21% silver. On the ACA exchanges, where 85% of buyers were subsidized, just 20% selected bronze plans, and 65% bought silver. In other words, a large portion of this price hike is voluntary -- and subsidized. See this post for more on this point.

**Nationally, the percentage of Americans who have a preexisting condition -- one that would affect their ability to obtain insurance in the pre-ACA individual market -- ranges from 19 to 50 percent, according to an HHS report overviewing various studies. In a recent poll of four southern states, 57-60% of participants said that someone in their family had a pre-existing condition. A Kaiser tracking poll found that 49 percent of Americans under 65 report that they or a family member have a pre-existing medical condition such as heart disease, diabetes, asthma, and cancer. Only a quarter of that 49 percent reported that they or someone in their household has been denied coverage or had their premium raised because of a pre-existing condition. But most of them, like most Americans, must have had access to employer-sponsored insurance, which is generally free from medical underwriting .

Fauxbamacare freebie No. 1: Covering those with pre-existing conditions
Healthy, relatively wealthy, and hit by ACA rate hikes
The satisfied unsubsidized: Obamacare's hidden winners


  1. My reading says that in 2008, 1.7 million persons applied for individual health coverage.
    About 250,000 were denied due to pre-existing conditions.

    As you say, the vast majority had access to employer coverage.

  2. I've always assumed that lifetime limits played a non-trivial role in holding premiums down. Not the case?