Opinion: Look Past Premiums to See How Health Insurance Will Change in 2014

Joel C. Cantor | October 1, 2013 | Health Care
The new premiums look good, but as attractive as they are, they only tell part of the story

Joel C. Cantor
In case you missed it, today, October 1, 2013, marks the launch of the health insurance marketplaces where people can start signing up for subsidized coverage or the expanded Medicaid program. We can finally take stock of the new coverage options — their prices and benefits — and see if the Expedia-like Healthcare.gov will function as promised.

There was a surge of news last week when the U.S. Department of Health and Human Services (HHS) released information on premiums for selected plans to be offered on Healthcare.gov. At first look, the premiums look like a big improvement over the status quo. For example, a “silver plan” (designed to pay benefits amounting to 70 percent of the cost of the average enrollee) will cost about $260 per month for a single 27-year-old, even before any subsidy. The same plan for a family of four with middle-aged parents would cost about $943.

By way of comparison, in today’s non-group coverage market, the most popular comprehensive plans would cost nearly twice as much, roughly $460 per month for the 27-year-old and about $1,866 for the family. While not exactly an apples-to-apples comparison, the new premiums look good.

But as attractive as these premiums are, they do not tell the whole story. The federal data release, for instance, did not tell whether the examples shown have narrow or broad provider networks. In addition to deductibles, whether one’s doctors and other providers are “in network” is one of the most important considerations in selecting a plan. Some plans will not pay for out-of-network providers at all and others will have high patient cost-sharing to go out of network. All of this information is available on Healthcare.gov, so it is important for consumers shop carefully. Many will find attractive plans at good prices, but others may find premiums on their preferred plans do not look quite as good as the ones the feds published.

Healthcare.gov can also tell consumers whether they are eligible for government subsidies that could make coverage even more affordable. In the example published last week, a family of four with annual household income of $50,000 would pay a monthly premium of only $282. That is a very good deal.

On balance, the published premiums are good news. They reveal that health insurance company actuaries believe that more healthy people will sign up for coverage. The expected enrollment will broaden the risk pool on which premiums are based and bring down average costs. If the actuaries are right, we can be optimistic about how well the new marketplace will work.

But beyond the details of plan offerings on Healthcare.gov, other forces will determine how well health insurance markets will function next year. The Affordable Care Act makes myriad changes to rules governing health insurance both inside and outside the new subsidized marketplaces. The new rules are well intended. For example, the ACA prohibits charging women different rates than men of the same age. Without such rules, insurers charge women more than men, on average, for the same coverage. The Obama administration says this new rule prohibits discrimination against women. Sounds fair. But in some plans women older than childbearing age but too young for Medicare have costs lower than their male counterparts, in which case the antidiscrimination rules cut against women.

The new ACA rules also require insurance companies to broaden risk pooling among their various plan offerings. Before the ACA, those in plans that are more attractive to healthy people (such as very high-deductible plans) paid premiums based on the healthy mix of buyers of the same product. Starting next year, those folks will be pooled with people in plans that are more attractive to older and sicker groups. Broader risk pooling may be fairer and it will certainly help bring costs down for high-risk individuals, but it will also lead to comparatively higher cost for young and healthy insurance buyers. In short, whether your premium goes up or down will depend on your demographics and the nature of your current coverage. No doubt some people will see premium increases next year as a result of the new rules.

While the media has been appropriately focused the new marketplace coverage options, little attention has been paid to how costs of coverage outside the marketplace, including small group plans, will change because of the ACA market regulatory regime. While the ACA is not likely to noticeably alter average premiums across regulated markets, there will be winners and losers. Even if you believe the new rules are more fair (no gender discrimination, broader risk pooling), knowing that there will be little average impact is small comfort if you are on the losing end.

It is difficult to predict exactly how insurance markets will change in response to the new regulatory landscape. The changes will not happen suddenly on January 1, they will unfold over the course of 2014 as plans reach their renewal dates. Many people will have the rare experience of receiving a smaller insurance bill or finding new, more affordable coverage options. But others will suffer sticker shock when they get their coverage renewal letters.

Premium changes for some groups, whether higher or lower, may be unavoidable under the new federal law. Still, New Jersey regulators and legislators should pay close attention to how our coverage markets change over the coming year. Even while complying with the ACA rubric, state officials may be able to tweak the rules to reduce some of the negative impacts.

If the undesirable, unintended consequences of the new market rules cannot be mitigated, the ACA and state regulators may well take some big public relations hits. People surprised by large premium increases through no fault of their own are much more likely than those receiving lower insurance bills to call the media. And many in the media, for whom a good political story trumps nuanced explanation, are likely to hype the horror stories. It behooves the news media to understand and tell the whole story. And it behooves insurance market wonks and policymakers to focus on the details of this historic transition and do what they can to set fair and effective insurance market rules.