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Opinion: Beyond the Spin Doctors, Insurance Premiums Under Obamacare

Does the ACA mean higher or lower insurance premiums for New Jerseyans? In a word, 'Yes'

Joel C. Cantor
Joel C. Cantor

With less than 60 days until open enrollment begins for new coverage options under Obamacare, the testy debate about whether the health reform law is good for America has moved to a new front -- health insurance premiums.
In our region, the spin on how premiums will change in 2014 when key provisions of the Affordable Care Act are in place began in earnest when New York Gov. Andrew Cuomo announced that premiums for individuals buying coverage in that state would drop by over 50 percent next year.

Other states have followed with announcements of their own. Last week Maryland released its 2014 premiums, touting how the state had negotiated a one-third reduction in premiums proposed by insurers in that state.

Dueling headlines ensued. The Baltimore Sun headline read, “Premiums to go up as much as 25 percent under health reform.” The Washington Post banner had a different take, “Maryland issues insurance rates that are lowest in U.S.”

Proponents of the Affordable Care Act argue that reductions in premiums are real and result from enhanced competition among insurers in newly created exchanges (now called marketplaces), while opponents argue that costs are rising because of onerous new Obamacare regulations.

When it comes to changes in health insurance premiums, statewide averages are of little value. Rather, it is important to understand why premiums would change, and only then can we understand whether they are rising or falling, and for whom. New Jersey has not yet released the rates for 2014. They will be out no later than October 1st, and, of course, we all want to know will they be up or down.

Not at all obvious from the current public debate is that for the majority who get coverage through their jobs, very little will change. For those with job-based coverage, premiums will go up like they do every year because of the rising cost of medical care. Fortunately, healthcare inflation has been unusually low lately (whether Obamacare contributed to the moderation of costs is another matter of debate), but costs are still going up faster than inflation so we will see increases.

More importantly, many workers will pay more of their premium out of pocket because the labor market remains soft, driving many employers to shift costs to workers. A few features of the health reform law will (in some cases already have) also modestly increase the cost of employer-sponsored coverage, including the rule that family plans cover young adults up to age 26 and regulations making certain preventive benefits available with no cost sharing. There is no free lunch.

The Obamacare premium-spin wars are about coverage of the small share of Americans without Medicare, Medicaid, or job-based coverage. The number of people in this boat, those who buy coverage directly from insurers, will grow under Obamacare, which imposes tax penalties on the uninsured and offers subsidies to make coverage more affordable for millions.

The premiums making headlines are for coverage of those eligible for subsidies through the new marketplaces (in New Jersey, the subsidies will be available at healthcare.gov).

Back to the question at hand: Are these premiums going up or down? The difficulty answering this question is that the 2013 to 2014 comparison is not apples-to-apples. Health insurance premiums are driven by a complex mix of forces: who buys coverage (i.e., the risk pool), what is covered (i.e., the benefit package), and what factors may be used in setting premiums (e.g., age, sex, health).

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