A new report from the Government Accountability Office detailing insurance premiums paid throughout the United States in 2013 provides another piece of evidence that young and healthy Americans will see their premiums soar once President Obama’s health care law kicks in next year.
In response to a request from Sen. Orrin Hatch, R-Utah, the GAO cataloged premiums in all 50 states plus the District of Columbia as of January 2013. The report provides the minimum price, median price and maximum price for individual insurance policies for a sample of demographics. There are a number of caveats. The rates presented could vary based on a person’s specific health status, for instance, and not every plan was offered in every part of each state. But taken together, the report provides analysts with a good basic sense of where premiums are in the pre-Obamacare marketplace.
In the table below, I consolidated GAO data for the minimum annual price of insurance in every state for a 30 year-old male non-smoker. Obamacare hinges on convincing this population to purchase insurance.
There are several observations I have from looking at the data below. For starters, the four most expensive states for a young and healthy resident to purchase insurance (Massachusetts, New York, New Jersey and Maine) all currently have Obamacare-like regulations on the books (most significantly, a requirement that insurers cover those with pre-existing conditions). Massachusetts — the most expensive place to purchase insurance — is essentially Obamacare at the state level.
Beyond that, it’s worth noting that the anticipated rates under Obamacare are far more expensive than the existing rates for a healthy 30 year-old. Starting next year, a 30 year-old earning $35,000 per year would have to pay $2,739 annually for a cheap “bronze plan” on the new health insurance exchanges, even after receiving subsidies, according to the Kaiser Family Foundation’s subsidy calculator. That’s more expensive than any state in the current system, and seven times more expensive than in the cheapest state, Nebraska, where premiums are currently as low as $349 annually.
Even an otherwise comparable 30 year-old earning $25,000 next year, who would qualify for more generous Obamacare subsidies, would have to pay $1,142 annually for a “bronze plan.” That’s still more expensive than current cheap rates in 45 states, and double the current cost in 19 states.
Importantly, under the current system, with these insurance rates available, not enough young and health people purchase insurance to offset the costs of covering those with pre-existing conditions. As Bloomberg’s Lisa Lerer & Alex Wayne have reported, “For the president’s plan to succeed, almost 40 percent of the 7 million people targeted in the first year need to be young, healthy adults to balance the cost of insuring older people at higher risk of illness.” That means that the Obama administration has to convince nearly 3 million young and healthy Americans to purchase insurance by offering them drastically higher rates than the current market — the one from which they’re currently opting out.
Supporters of the health care law would say a few things in response. One, they’d note that even when the cheap rates are available under the current system, they may not cover much. The cheap Nebraska plan, for instance, has a $5,000 deductible and a $10,000 out-of-pocket maximum each year. Some plans have even higher maximums. The problem with this argument is it hinges on the assumption that uninsured younger Americans will be willing to pay more for more insurance, even if they are currently electing not to buy the cheap insurance that’s been available to them.
Second, supporters would note that the health care law contains not just carrots, but a stick in the form of the individual mandate, which requires that young Americans purchase insurance or pay a tax. The problem with this theory is that in 2014, the penalty for going without insurance is just $95, or 1 percent of taxable income — far lower than the cost of buying coverage, even after subsidies.
Even liberal economist Uwe Reinhardt, generally a defender of the law, wrote that, “Because the penalties for disobeying that mandate are so low, many young, healthy people may prefer to pay the penalty and remain uninsured until they fall ill, when they can get community-rated coverage.” He called it a “major design flaw in the law.”
For another take on the GAO data, the Washington Post’s Sarah Kliff has more.