How will ObamaCare impact individual health insurance premiums? That was a big question during the debate over reform–and it’s a big question now that HHS has released a slew of proposed regulations (here and here) regarding the 2014 implementation of the law.
The general feeling seems to be that individual premiums will rise in 2014 because the law requires guaranteed issue with a weak mandate (i.e., a formula for adverse selection), eliminates setting rates by gender, and limits how much more plans can charge older people. HHS acknowledges there could be some rate disruption, but overall seems to think that these price drivers will be largely mitigated:
While eliminating gender rating and the limitations on age ratios could affect premium rates for some in some markets, this will be largely mitigated for most people by the availability of premium tax credits, by increased efficiencies and greater competition in the individual market, by measures such as the transitional reinsurance program and temporary risk corridors program to stabilize premiums, and by expected improvements in the overall health status of the risk pool.
Carl McDonald of Citi fundamentally disagrees with HHS’ assessment, noting that average underlying individual premium rates will increase by 20% in 2014. Along with adverse selection and limits on rates for older members, he cites new industry taxes and assessments. Conservative blogger Avik Roy translates the above HHS statement as follows: “We will drive up the cost of health insurance for most people, and spend lots more taxpayer money in order to hide that fact from voters.”
What might be helpful at this juncture is to recall CBO’s November 2009 scoring of the Senate version of reform—the bill that essentially became ObamaCare. CBO projected at the time that individual premiums would rise 10% to 13% by 2016.
CBO also projected that premiums for large employers (i.e., more than 50 workers) would be unchanged or down as much as 3%, while premiums for small groups (up to 50 workers) would see premiums range from up 1% to down 2%. Those two categories cover about 160 million people.
Unsubsidized individuals—about 14 million people—would pay more largely because they would be getting much better coverage, CBO said. Subsidized individuals—about 18 million people who need help from taxpayers to pay for insurance—would see premiums fall by a lot.
Meanwhile, Justin Lake of J.P. Morgan notes that elements of the proposed regulations may serve to mitigate both rate increases and the risk to health plans of under-pricing and incurring heavy losses. These include government-backed risk corridors, industry-backed reinsurance cross-subsidization and risk adjustment mechanisms to offset plan-specific adverse selection.
Lake estimates that reinsurance cross-subsidization (funded by the entire commercial insurance market) will provide a 10% individual market pricing cushion during the shift to guaranteed issue and community rating in 2014. “Pricing will be buffered here somewhat” by the cross-subsidization, Lake says, “meaning that the end consumer will see more modest rates than they would have otherwise.”
Finally, HHS points to another likely offset—a reduction in uncompensated care for the uninsured, the cost of which is typically shifted to health plans in the form of higher provider rates. Fewer uninsured “would reduce the amount of uncompensated care and could lead to a decrease in private health insurance rates,” HHS says.
Bottom line: the ultimate impact of ObamaCare on individual premium isn’t completely clear; what is clear is the government is aware of the risks inherent in reform of this magnitude and is taking steps to mitigate the disruption. Meanwhile, tens of millions more people will benefit from good, basic health insurance.
There’s a word for all the give-and-take I’m outlining above. It’s called compromise.