On Thursday, May 23rd, 2013, California released its expected rates for the new state run Health Insurance Exchange ("Covered California") and described the rates as if they were lower than current plan rates.
"These rates are way below the worst-case gloom-and-doom scenarios we have heard," said Peter Lee, executive director of the California exchange.
Then certainly, the conservative left immediately began iterating statements in direct contrast with Mr.
Lee's statement(s).
"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" by Avik Roy, contributor Forbes.
com.
So in researching further, you found people publishing information to the web that either one side was right or the other side was wrong based on whatever side of the political spectrum they reside in.
This confusion led me to research this on my own to try and get to the actual situation that Californians will be facing with the new Health Insurance Exchange.
The fact checking After looking into the rates for a 25 year old healthy, non-smoking male for an individual policy, it does appear that for someone looking to purchase coverage on the new Exchange plans will truly increase between 73% and 123% depending on your location etc.
Now as part of the Obamacare law, people under 30 can purchase catastrophic plan coverage (A simplified plan that in theory should be cheaper than regular plans because it simply does not cover all the same things as a regular health plan), so even these plans are showing an increase in price over current rates for someone in this age group.
So based on checking out the data which these articles are based on, the info graphic provided at Forbes.
com, where a 25 year old male in California,does in fact look to be accurate and will be paying up to 123% more for the same coverage.
Looking at the 40 year old scenario, this also seems to hold true in the example on Forbes.
com as well.
Since Obamacare does not allow for anyone over 30 to purchase catastrophic plans, the choices are even more limited for anyone in that group, and they appear to be also facing significant increases in price.
- Since these facts seem to be holding true, let's look into how the information put out by California was potentially off.
The main difference seems to be that the price comparison given was not a true plan type comparison.
From the press release issued by Covered California, "The rates submitted to Covered California for the 2014 individual market ranged from two percent above to 29 percent below the 2013 average premium for small employer plans in California's most populous regions.
".
This statement seems to imply that the comparison used was in fact 2 different types of health insurance plans (Individual and Small group/employer).
Now these 2 different types of plans typically have very different pricing because of the design of the plans, where small group/employer is designed to cover more than 1 person/family and as such there are claims and coverage considerations across the entire group of people (employees) built into that pricing and individual/family plans are only designed to cover a single person or family where claims and coverage are based on only that single person/family.
So not sure why California decided to compare the rates of non-similar plans for this press release, but these types of plans have always been different and even under Obamacare they will remain different (Insurers have to apply separately for each of these plan types for approval).
So using the fact that the plans are inherently different in design etc, it seems to me that this comparison made by California is incorrect.
Other important items One additional thing to understand about the new Obamacare based plans is that these plans must consider everyone including those with pre-existing conditions, and while this is a good thing to provide coverage for individuals with known illnesses, there also must be an increase in premium since there will be more claims made when including people who are already sick.
This is why the individual mandate portion of the Obamacare law is so important, insurance is a risk management business, so you need healthy people to pay into the plan who have minimal claims to offset the claims of those who are sick.
This concept is similar to Social Security where young people pay into the system even though they are not drawing anything out until retirement.
So while the concept of Obamacare seems to make sense on the surface by offering plans to all, it seems to me that the mathematics of the insurance business makes it nearly impossible to offer plans that are lower priced than what is currently available in the market today.
Now there are Obamacare pundits that say the MLR Cap, increased competition and standardized plans will help drive plan prices down, the simple fact is that the costs of covering everyone without the ability to charge different amounts, will force the prices up since the costs of the claims are unknown.
Also, given the subsidies that will be made available to Americans through Obamacare, the price increases will be less of an impact to individuals who qualify for those subsidies.
These subsidies, while well intentioned, seem to leave a large gap however for those those who do not qualify and will have to pay the higher premiums for health coverage.
Where does that leave you? Given the situation described here, it appears that while Obamacare will provide coverage for everyone, it will almost certainly cost more for the that coverage for those not eligible for subsidies based simply on the mathematics of insurance and the increase in the costs of covering everyone.
This may end up being a fatal flaw in the Obamacare law because it appears that the middle class will have to absorb not only the additional cost of higher premiums, but they will also face potential tax increases to pay for the subsidies that are allocated to allow lower income people to afford the insurance.