Will Obamacare’s costs break your bank?

There’s much confusion about the “costs” of Obamacare, with some opining that health insurance costs will explode and others citing recent data indicating the opposite.

This is a blog post, and therefore I won’t write, and you don’t have time to read, a comprehensive overview.  So, here are the highlights.

1.  The law requires insurers to sell only standardized benefit plans; one reason for this is to prevent plan-design-based “underwriting”;  today, health plans can use benefit design as a way to encourage sick people to go elsewhere and healthy people to sign up.

2.  In some instances, the plans some people have today are much less generous than even the lowest plan offered thru the Exchanges.  Thus, those people with very high deductible/low benefit plans will see a big increase in cost.  However, their benefits will be much better.

3.  The new law significantly restricts underwriting practices; charging higher prices based on age, pre-existing conditions, sex, and other factors is limited or banned. Thus folks who are very young and healthy today are likely to pay more – in some cases a lot more – while older and sicker people will likely pay less under ACA.  

4.  Employers that have health plans today are not going to see much change as their plans are grandfathered in as long as they don’t significantly reduce benefits.

So, what about costs?

“Rate shock” is the term used by some to describe the big increase in insurance prices due to the mandated benefits under ACA and elimination of pricing differentials based on age etc. There’s been a lot of speculation about pricing, but so far this has been mostly speculation – except for those states which have set up their own exchanges and negotiated pricing with insurers that will offer plans on those exchanges.

BTW, only about 2.5 percent of Americans will get coverage thru the exchanges next year, so all this babble about rate shock and the efficiency of exchanges is somewhat overblown

California published rates that were significantly lower than projected; the blog-o-sphere immediately responded with yelling headlines based on carefully-selected facts that supported their ideological positions.

Here’s the net.  Comparing costs via the exchanges to current published prices is an-almost pointless exercise; the benefits are different and there is underwriting today that will be illegal next year. I say “almost” because the rates for a “bronze level” plan in CA under the exchange are almost identical to those offered today for a similar plan.  However, a quarter of those applying for plans today can’t buy at the published rate because they have health risks that result in higher costs.

That said, I’m a big believer in well-regulated competition.  Insurers will figure out how to deliver lower-cost, higher-quality health plans – or they will go out of business.  Many will offer plans with small provider networks – which is good.  The prices published in California and Vermont are early proof of the power of the market. Some insurers will not adapt and will fail, others will flourish.

Lastly. ponder this.  Where would we be without Obamacare?  What would happen as health care costs continued to escalate and private insurers continued to risk-select? More uninsureds and ever-increasing costs as providers charge insureds more to cover the costs of treating those without insurance – or with insurance that doesn’t cover much.

What does this mean for you?

Obamacare has more than its share of warts.  But the alternative – the continued health insurance death spiral  – is much uglier.