Competition, not higher premiums, is biggest threat to Obamacare buyers

April 14, 2014
Back to TopCommentsE-mailPrintBookmark and Share

There have been lots of news reports, including some from me, about insurers raising premiums 10 percent or more on the Obamacare exchanges next year.

But for most people who bought health coverage in the Obamacare exchanges, that’s not really a concern.

That’s because the vast majority of Obamacare buyers so far have received tax credits to reduce the cost of that coverage.

Those subsidies, rather than being flat dollar amounts, fluctuate so customers never pay more than a certain percentage of their incomes on insurance.

In other words, if premiums rise next year like WellPoint Inc. has predicted, subsidies also will rise to keep the net cost to consumers at the same percentage of their income.

So rising premiums aren’t a problem for consumers, unless their income rises so much that it reduces the size of their subsidy.

"If all insurers increase their rates by 10 percent, that might not have a dramatic shift in the market," said Paul Houchens, a consulting actuary at the Indianapolis health practice of Milliman Inc. "Most of that premium increase is going to be absorbed by the federal government."

(Rising federal spending could also be a problem for Obamacare--not to mention taxpayers--but that's not my focus today. Also, Houchens noted, Obamacare's premiums are not scheduled to rise in line with premiums forever, but will be indexed to income growth and inflation.)

But for 2015, what could cause the biggest problem for Obamacare consumers, Houchens pointed out to me last week, is if an insurer reduces its premiums. Or if a new competitor enters the market in 2015 with lower premiums than insurers were offering in 2014.

If that idea makes your head spin, welcome to Obamacare, where up is down and down is up—at least compared to how health insurance used to work. It’s what I’ve taken to calling “the weightlessness of Obamacare”.

Here’s how low-cost competition actually could be worse for Obamacare consumers:

Obamacare requires insurers to offer a variety of health insurance plans whose benefits are valued at one of four levels: bronze, silver, gold and platinum.

The subsidies for all of those kinds of plans, however, are calculated so the second-lowest-cost silver plan will only cost consumers that pre-set percentage of their incomes. Those subsidy amounts are then applied to any plan a consumer may purchase.

Here’s an example using the plans available on HealthCare.gov in Marion County:

If a family of four headed by two adults in their mid-30s is making $59,625 per year, the Obamacare subsidies will make it so the second-lowest-cost silver plan costs no more than 8.15 percent of its income, or $4,860.

In Marion County, the two cheapest silver plans are sold by Anthem Blue Cross and Blue Shield. The cheapest plan costs $7,700 a year and the second-cheapest costs $8,040.

To make that second-cheapest plan cost only $4,860, Obamacare applies a tax credit of $3,180. So that is the subsidy available for any family of four making $59,625—NO MATTER WHICH HEALTH PLAN that family purchases in the Obamacare exchange. It can be a bronze plan or a gold plan. It can be more or less expensive. No matter, that family will receive a subsidy equal to $3,180.

But what happens if another insurer—such as UnitedHealthcare, which sat on the sidelines this year, or MDwise Inc., offers a silver plan in 2015 that’s just a little bit cheaper than the cheapest Anthem plan, say, for $7,500 per year?

In that situation, Anthem’s cheapest silver plan would then become the benchmark for the subsidies. To make a $7,700 plan only cost a family of four $4,860, the tax subsidies would need to be only $2,840 per year--$340 less than they were before.

Now, the family of four could shift plans to that cheaper Anthem plan, and pay no more in premiums.

But if that family doesn’t want to change health plans—and with the narrow networks in these exchange plans greatly restricting patients’ choice of doctors and hospitals, that’s a very real possibility—the family will have to cover the $340 themselves.

That’s an extra $28 a month, or 7 percent more—for exactly the same coverage.

So, the key to affordability next year in the Obamacare exchanges—at least for those receiving subsidies—is whether the insurers try to undercut one another on price in the silver category.

Such competition will lead to more choices and better prices—but it will either require consumers to switch plans or pay higher premiums.
 

ADVERTISEMENT
  • Pelosi-ed
    Remember- we have to pass the bill to find out what's in it! Until this disaster is repealed and replaced, we will be paying dearly for this for years to come. Decades from now, Obamacare will be recalled with the same ridicule as the Edsel, New Coke, and the 1962 Mets. One part of it that has proved popular and does work actually makes no sense. Keeping "kids" on their parents plans until age 26 is ridiculous. Why 26? Why not 24, or 28? How dumb is it to have a married couple, both 25, to still be on Mommy and Daddy's insurance, and two different plans, no less?
  • Not Sure Steve Gets It
    Steve - Your comments suggest some immaturity on your part with respect to insurance coverage and children's situations as they get older. In addition, you sound like another person repeating the Fox television channel of offering only criticism and nothing constructive.
  • Response to Jim
    OK Jim, answer this. Other than young adults still in school, what possible reason is there for those under the age of 27 to still be on their parents health insurance plan? On the assumption that you come up with an acceptable answer, who pays for this extra coverage? The parents? The employer? The insurance company? Do they (whoever pays) pay an additional premium for each extra "child", or is it a "family" plan? If a "family" coverage premium, how is that fair to those with one "child" as opposed to a family with two or three? Looking forward to your answers. Seriously.
  • Competition
    Competition is the biggest threat to any government program, and is the reason why the HHS rules have attempted to eliminate competition from the insurance market to support Obamacare
  • Uh..duh...um.. i got nothing....so i'll just blame FOX
    @JIM - thanks for reciting the usual LIB comment....basically nothing of substance and then blame FOX. Instead of supporting Obama and his policies with actual fact and reality of successes (which is impossible because progressive policy is never followed by success, progressives only ever support Obama by blaming Fox or Bush. The only thing you forgot to do was yell racist.
  • Cost of HealthCare
    J.K., per your statement above: "In other words, if premiums rise next year like WellPoint Inc. has predicted, subsidies also will rise to keep the net cost to consumers at the same percentage of their income." So, costs are not really reduced, as the government provides a parachute of reducing costs with Tax Credits for these selected customers, which means logically I believe, that someone else's taxes will go up to cover the tax credits. Correct?
    • To Mike
      That is correct. Rising amounts of premiums that are offset by tax subsidies means a rising tax bill for the government, which is funded by all other taxpayers.

    Post a comment to this blog

    COMMENTS POLICY
    We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
     
    You are legally responsible for what you post and your anonymity is not guaranteed.
     
    Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
     
    No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
     
    We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
     

    Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

    Sponsored by
    ADVERTISEMENT
    1. Good Day I am Mr (Victoria Wright) from United state of America, i stayed in NEW YORK, and i have a broke up business, until i found this company email who help me to gain a loan for business,, and now i want to used this short medium to congratulate the below company for the fast and safe money they loan to me without any form of collateral, i loan 500,000USD from the company to save my business and lots more, i saw their mail on the internet, everyone always give testimony for what they did, so i quickly contacted them and they all did everything for me without stress and my money was sent to my account just 3 days later, i was surprise and i feel so glad, now i have a standard business control agent who help me, now i will advice those who need urgent loan to contact him at the bellow email:zenithfirm12@gmail.com

    2. NOTICE:This is to inform the general public that Vampires are real. My name is James Franklyn.,am an agent of vampire,am here to introduce our new world trend to you,a world of vampire where life get easier,we have made so many persons vampires and have turned them rich,you will be assured long life and prosperity,you shall be made to be very sensitive to mental alertness,stronger and also very fast,you will not be restricted to walking at night only even at the very middle of broad day light you will be made to walk.In case you are wildly oppressed by some unscrupulous persons we can still help you fight them.Your protection is assured immediately you join.Just contact the bellow email if you are interested we are here to attend to you anytime you want us. Contact the bellow email for more details. Email:vampirescreed@hotmail.com Sincerely: James Franklyn.

    3. Bravo! Someone else that is willing to speak the truth! Bravo!_____NBCSN is available in almost 2 MILLION more homes than just a few years ago, but Indycar STILL gets less total viewers than it did just a few years ago when NBC took over Versus. Attendance and ratings cratered with the end of season races (just when the title battle got "interesting" HAH!__________And now...new race in Basilia, where Miles celebrated the "rich history" of Indycar racing there. Rich history? What, 7 events in the 100 years of AOW? Yep, some history. Well, at least its an oval. It's not??? Are you kidding me??? Gosh darn road racin furriners.

    4. PURITY RAY LOAN OFFER........ Have you been denied by your banks,or are you in need of of an urgent loan to pay of your bills we are capable of giving loans @ cheaper rate to interested individuals, student, companies and members of the public in need of finance to settle bills, we do offer considerable loans which you can count on. For more information on our various types of loan,then you will have to contact PURITY RAY LOAN FIRM, to help you achieve your desire LOAN APPLICATION FORM TO BE FILLED BORROWERS INFORMATION * Full name:………………………. * SEX * ……………………………. * Country………………………….. * State:……………………………. * Land:…………………………….. * Occupation:…………………….. * phone number:…………………. * Telephone: ………………………….. * Age:………………………………. * Amount needed as loan:……… * Loan Duration:………………….. * Propose of Loan:……………….. * Annual revenue:………………… * Monthly Income:……………….. * Guarantee:………………………. * Payment: monthly or annually Email.....purityrayloanfirm@gmail.com Thank you and God bless Mr Purity Ray PURITY RAY LOAN FIRM we tend to serve you better

    5. Problem: most of the people responding to this article don't know about this service AT ALL! Why? Lack of awareness. This isn't IndyGo. This is CIRTA: might as well be the mattress company because they are asleep at the wheel - something like 3 directors over the last year? Playing with federal grant money is great! This "region" wants commuter rail service, has spent MILLIONS on Transportation studies yet can't even support a commuter bus line? This is largely for suburban riders to get to downtown - not for "service people to work in our hotels and restaurants" ! Get your head out of your backside!! These are professionals, students etc. that don't want to fight traffic, save some money on parking, gas, stress.... if CIRTA would put their federal money into widely promoting the sevive to Greenwood, Fishers & Carmel instead of finding directors and studies - this would be a successful service. Our family uses(d) it daily for the last several years - but the recent uncertainty & now unreliability due to cuts from Carmel has been a problem. Now, costs us an additional $350/month for gas & parking ( $4200/year) plus vehicle wear, service, environmental impact ... YES - this REGION needs this this type of service in order to keep growing and getting the people it needs to fill skilled positions in downtown Indianapolis. Think outside of your own car !!!

    ADVERTISEMENT