What’s Really Going On With Obamacare Insurance Premiums?

You might have seen headlines recently trumpeting
Obamacare’s success at restraining health insurance premiums next
year. One analysis, relying on early rate filings in major urban
areas, actually found a
slight drop in “benchmark” plans—a particular category of
mid-priced plans sold through the exchanges.

But the story with premiums is, at minimum, more complicated
than that. A
new report in The New York Times, which digs through
early rate filing data, does a good job of teasing out the
complexities.

For one thing, as the Times notes, it’s not all that
helpful to just look at average prices, because “individual
consumers don’t buy the average plan. And the federal government
doesn’t pay for the average plan.” And when you look beyond the
averages, the premium changes we’re seeing so far don’t look quite
so rosy, especially for those who stick with their current plans.
“In many places premiums are going up by double-digit percentages
within many of the most popular plans,” the Times
reports.

Now, it’s true that in one sense, we’re seeing a remarkable
restraint in premium growth: Prices for the cheapest plans in the
law’s “silver” tier—the middle of the plan hierarchy, which must
cover 70 percent of average costs—are expected to drop in some
states, and rise just 1 percent overall.

But the cheapest silver plan last year is not
necessarily the same as the cheapest silver plan this
year. So if you’re already in the system, and you want to keep your
premium from rising, that means you’ll probably have to switch to a
different plan, with a different payment configurations and a
different network providers.

On the other hand, if you’re on the cheapest plan from last
year, and you want to stay in your plan—or if you bought through a
federally run exchange and decide to accept the auto-renewal system
that the administration has set up—then you’re probably in for big
price hikes. “Those prices are going up almost everywhere,” the
Times reports. “In some cases, they have increased by more
than 10 percent. The average increase is 8.4 percent.”

So you can keep your premium—or you can keep your plan. But in
many cases, you can’t keep both.

There are potential upsides here. In theory, it could teach
people buying through the exchanges to shop around more frequently,
which could create a more cost-effective, competitive health
insurance ecosystem. The fact that the low-end of the silver tier
is holding steady suggests that insurers may, in fact, be looking
to compete with each other on price. Most of the inexpensive plans
next year are new entrants, or are plans with fewer members,
looking to price low in order to gain market share.

But how long can that go on? If low-prices exist only as teaser
rates, designed to lure in customers whose premiums will be hiked
later on, then what we’re really seeing may not be meaningful
cost-restraint so much as artificially low prices that aren’t
sustainable over time.

And to some extent, all the premium prices we’re seeing right
now are artificial, or at least experimental, because they are
built on the expectation of a significant federal subsidy in the
event of unexpectedly high claims costs. Obamacare’s “risk
corridors” program—often referred to as its insurer bailout—runs
through 2016, and it allows insurers to experiment with potentially
unsustainable low pricing. Insurance industry consultant Bob
Laszewski recently
wrote that he’s heard “reports of actuarial consultants going
around to the plans that failed to gain substantial market share
suggesting they lower their rates in order to grab market share
because they have nothing to lose” thanks to the way Obamacare
covers insurer losses.

As Laszewski also notes, there’s not much in the way of claims
data so far, so insurers don’t really have good information about
the expected costs of the exchange population, which means the
rates they are setting are heavy on guess work. 

The big picture here is that it’s hard to tell what’s going on
with Obamacare premiums. Prices on popular plans are pretty clearly
going up, but there does seem to be some effort to compete on
price, at least for now. But how long will that last? And how big a
success is it really if it requires hefty federal subsidies for
both individuals and insurers?