As insurance companies begin to propose premiums for 2015, it’s time for Americans to brace themselves for the next round of rate shock in the wake of President Obama’s health care law.
There are several ways in which Obamacare drives up the cost of health insurance.
The primary way is that it requires insurance plans to offer a certain raft of benefits specified by the government and to cover everybody who applies, regardless of pre-existing conditions. It then limits the amount that insurers can charge older and sicker patients relative to younger and healthier patients, driving the costs up for the latter group.
In addition, the law imposes over $100 billion in taxes on insurance plans between 2014 and 2022, and the Congressional Budget Office concluded that the taxes “would be largely passed through to consumers in the form of higher premiums for private coverage.”
Premium changes vary widely depending on the type of insurance plan, the demographics of every individual and the state in question. But, a June county-level analysis of premiums by Avik Roy and his team at the Manhattan Institute found that, on average, individual market premiums soared by 49 percent in 2014 as compared to 2013.
A PricewaterhouseCoopers look at premiums across 18 states in which insurers have submitted filings for next year, found that in 2015, rates would be going up in those states by an average of more than 7 percent. In six of those states, increases were in the double digits.
Within the states, the differences in the rates varied. For instance, Colorado insurers filed for a relatively modest increase of 3.6 percent, and premiums ranged from decreasing 22 percent to soaring 35 percent.
Supporters of Obamacare typically make several arguments in response to these arguments about premium levels.
One standard argument is that rates were going to go up anyway, because insurance premiums typically go up every year.
The problem with this argument is that Obama repeatedly promised to reduce the premiums of a typical family by $2,500 a year. He didn't promise, “rates will go up, but they would have been going up anyway.”
Another argument is that the increases are lower than expected. But it's important to keep in mind that rates for 2015 will be on top of the already elevated rates in 2014. As an example, according to eHealth, a website for purchasing medical coverage, the average rate for premiums in Indiana was $172 in 2013. But by 2015, according the PwC study, the average will be $514 in the state.
An additional defense of Obamacare is that individuals who obtain these plans are going to be getting better coverage than they otherwise would have due to the various protections and required benefits under the law.
But a better system would allow individuals to choose whether they want to purchase more expensive insurance, rather than forcing them to under the threat of penalties.
Also, one factor that's been keeping rates from soaring even higher is that insurers have responded to all of the new regulatory requirements by reducing the choice of doctors and hospitals offered in their plans. This Obamacare-accelerated trend toward “narrow networks” actually triggered a consumer lawsuit against Anthem Blue Cross, California's largest for profit-health insurer.
Defenders of Obamacare also like to point out that millions of Americans qualify for subsidies to purchase health insurance, thus they only pay a fraction of the sticker price of the coverage. But many Americans do not qualify for subsidies and yet are still legally required to purchase insurance or pay a penalty. Furthermore, if higher premium prices translate into more subsidies, then the cost of Obamacare to federal taxpayers will be higher.