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Rhode Island health insurance rates to jump under Obamacare

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Add Rhode Island to the list of states that will see health insurance premiums spike once President Obama’s health care law is put into place in 2014.

On Friday, the state’s health insurance commissioner approved new rates for large employers in the coming year that are 9.6 percent to 12 percent higher than they were in 2013. Though it’s routine for health insurance premiums to increase each year, the coming rate increases for large employers will be higher than they were last year, when the state approved increases ranging from 4 percent to 5.5 percent. Yet this understates the potential magnitude of the rate spike that some Rhode Islanders could expect.

For small employers and individuals, rates will now be over $300 per month. But read the fine print, and that represents the “base” rate for a 21-year-old. ”Final rates will differ based on a subscriber’s age and the benefits he or she chooses,” the insurance regulator said in a press release. This means that older and sicker people in the state could pay significantly more than this rate.

Just to get an idea of the rate shock that young Rhode Islanders could experience, I visited the Blue Cross & Blue Shield of Rhode Island website. I found that an individual under 25 years old could currently purchase plans ranging from $96 to $196 per month. However, the Blue Cross Blue Shield of Rhode Island “base” rate for a 21-year-old once the health care law kicks in will be $314, according to the insurance commissioner, or more than triple what some younger Rhode Islanders could pay under the pre-Obamacare status quo. I called the office of Rhode Island’s health insurance commissioner to clarify this point, but nobody was immediately available to comment.

As I’ve reported previously, the functionality of Obamacare hinges on insurers’ ability to lure enough younger and healthier Americans into the insurance market so that they can rake in huge profits from collecting exorbitant premiums from those with low medical expenses, which they can then use to offset the cost of covering older and sicker patients and those with pre-existing conditions. Insurers cannot be content to merely retain the younger Americans currently in the system; they have to convince those currently uninsured — who effectively pay $0 in premiums — that purchasing insurance is a good deal.

This is why high insurance rates are so troubling for Obamacare, especially for younger Rhode Islanders who do not qualify for generous enough subsidies to purchase insurance through the new government-run exchanges, expected to begin enrolling beneficiaries on Oct. 1. Under the newly announced rates, a college-aged Rhode Islander with very low medical expenses would be given the choice between purchasing insurance for $3,740 per year, or going without insurance and paying a penalty. In 2014, the penalty will be just $95, or 1 percent of taxable income. It’s easy to see a lot of younger Rhode Islanders — especially those who don’t qualify for insurance — going without coverage and paying the penalty instead. If insurers cannot attract enough young and healthy people into the insurance pool, then rates will continue to rise, spurring more healthy individuals to drop coverage, driving rates even higher. This cycle, known as the “death spiral,” could collapse the insurance market.

The news from Rhode Island comes on top of news about rate increases from other states, including California and Ohio. On Monday, the Wall Street Journal published a nationwide analysis of rate increases, which also found that rates will soar for healthier individuals as part of the law’s effort to help make insurance more affordable for sicker Americans.

There are additional explanations for why the health care law drives up the cost of insurance. Beyond the effort to have healthier individuals susubsidize sicker Americans, as a result of the law, the federal government will also dictate that all insurance policies offer a standard set of minimum benefits rather than allow individuals to purchase the type of insurance that best meets their medical needs.

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