Tuesday, December 4, 2012

The Affordable Care Act: Ten Months to Launch "Obamacare"––Get Ready for Some Startling Rate Increases

What will health insurance cost in 2014?

Will the new health insurance exchanges be ready on time or will the law have to be delayed?

There Will Be Sticker Shock!
First, get ready for some startling rate increases in the individual and small group health insurance marketplace due to the changes the law dictates.

In a November 2009 report, the CBO estimated that premiums in the individual market would increase 10% to 13% on account of the health insurance requirements in the ACA. In the under 50 employee small group market, the CBO estimated that premiums would increase by 1% to a decrease of just 2% compared to what they would have been without the ACA. All of these differences in premium would be before income based federal subsidies are applied to anyone's premiums.

In recent weeks, the Obama administration issued a series of proposed regulations for the health insurance market. Since then, I conducted an informal survey of a number of insurers with substantial individual and small group business. None of the people I talked to are academics or work for a think tank. None of them are in the spin business inside the Beltway. Every one of them has the responsibility for coming up with the correct rates their companies will have to charge.

Hold onto your hat.

On average, expect a 30% to 40% increase in the baseline cost of individual health insurance to account for the new premium taxes, reinsurance costs, benefit mandate increases, and underwriting reforms. Those increases can come in the form of outright price increases or bigger deductibles and co-pays.

In states with the least mandates or for health insurance companies with the tightest underwriting now, the increase could be a lot more.

But when you add the impact of the requirement that older consumers can be charged no more than three times as much as the youngest consumers (the usual standard is now a five times difference), premiums increase dramatically for the youngest.

For example, expect individual health insurance rates for people in their 20s and early 30s to about double.

People in their late 50s and 60s might see net decreases because of the benefit they will get from the rate band compression.

Small group rates won't increase by quite as much as for those in the individual market––a baseline increase of 10% to 20%. Small group policies won't be as hard hit as individual policies because the underwriting reforms aren't as big a leap in this market. But small groups with lots of young people will be hit disproportionately since each person in the group has to be rated on an individual basis and then all of those covered rolled up into an average rate. Older groups might see rate decreases.

And, the new regulations require that insurance companies have to treat their old and new business the same. Most existing business will not come under the "grandfather" rules. That means most existing individual and small group customers can expect pretty much the same thing. That will be a shock to those who already have insurance and don't think the new law will impact them.

The health law also sets a maximum individual deductible of $2,000 for the "Silver" plan in the small group market. However, the new proposed rules gave insurance companies flexibility to make the deductible higher if they can't reasonably price such a deductible into a plan and still hit the coverage targets (i.e. covering 70% of all medical costs in the "Silver" plan). That flexibility is there for only one reason––it's looking more and more like the health plans will have to put higher deductibles on at least some of these plans so that they can comply with the overall cost and coverage requirements.

Come October 1, consumers will find that they will be faced with very comprehensive health plans but those plans––including the lower cost "Bronze" and "Silver" plans––will have very high deductibles. Middle class families (300% to 400% of poverty), who aren't fortunate enough to be in employer-sponsored plans and will be eligible for only partial federal premium subsidies, will still have to pay many thousands of dollars in premiums. They will also be confronted with a choice––pay the big premiums for a plan that will cover only 60% or 70% of their health care costs, with a big upfront deductible, or pay a fine equal to 1% of their income for each adult in the family.

Consumers with incomes in excess of 400% of poverty ($46,000 single and $92,000 family of four in 2014) are going to have to pay the full cost of these health insurance policies. But consumers who make less than 400% of poverty will have their premiums capped at a percentage of their income. So, anyone getting a subsidy will be insulated from the very highest premiums. Who will pick up the rest of the premium? Federal taxpayers.

Will the Health Insurance Exchanges Be Ready On Time?
In ten months, Americans without access to employer health plans are due to be able to purchase their own health insurance on the new health insurance exchanges.

So far, only 18 states have said they will run their new insurance exchange––and that does not necessarily mean they will all be ready. The feds are required to run the exchange if the state won't do it––20 have already said they won't do it and five more are "partnering," which essentially means they are leaving most of the work to the feds.

Complicating this even further, ten months out we are still waiting for the detailed rules on how those insurance exchanges are supposed to operate.

Will the feds be ready to provide an insurance exchange in all of the states that don't have one on October 1, 2013?

I have no idea. And neither does anyone else I talk to inside the Beltway. We only hear vague reports that parts of the new federal exchange information systems are in testing.

The former CIA director couldn't get away with an affair in this town but the Obama administration has a complete lid on just where they are on health insurance exchanges and haven't shown any willingness to want to talk about their progress toward launching on time––except to tell us all not to worry.

We are all worried. I would not want to be responsible for the work that remains and only have ten months to do it.

The feds keep extending the states' deadlines but there is one deadline that isn't moving––October 1, 2013.

Another Big Date
Given the big rate increases that are coming because of the ACA and the political risk the Obama administration faces if they don't get the exchanges up on time, I would suggest there is another big date they need to be worried about––November 4, 2014.

The Republicans said this would not work. If it does not launch on time, or does with serious problems, I would not want to be an incumbent Democrat.

I told them not to call this the "Affordable Care Act."
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