Democrats continue to try to dismiss the evidence that Obamacare will dramatically increase the cost of insurance for people who buy it on their own. But on Thursday, the Ohio Department of Insurance announced that, based on the rates submitted by insurers to date, the average individual-market health insurance premium in 2014 will come in around $420, “representing an increase of 88 percent” relative to 2013. “We have warned of these increases,” said Lt. Gov. Mary Taylor in a statement. “Consumers will have fewer choices and pay much higher premiums for their health insurance starting in 2014.”
The rates that Ohio reported are proposed rates; the Department of Insurance still has to formally approve them. “A total of 14 companies proposed rates for 214 plans to the Department. Projected costs from the companies for providing coverage for the required [by Obamacare] essential health benefits ranged from $282.51 to $577.40 for individual health insurance plans.”
It’s called “rate shock,” but it’s not shocking to people who understand the economics of health insurance. In August 2011, Milliman, one of the nation’s leading actuarial firms, predicted that Obamacare would increase individual-market premiums in Ohio by 55 to 85 percent. This past March, the Society of Actuaries projected that the law would increase premiums in that market by 81 percent. Like good players on “The Price is Right,” they both came in just under the Dept. of Insurance’s figure.
What are the drivers of the increase? According to Milliman, the two biggest drivers are (1) risk pool composition changes, such as forcing the young to subsidize the old, and the healthy to subsidize the sick; and (2) Obamacare’s required expansion of insurance benefits, particularly its mandated reductions in deductibles and co-pays.
This is a significant concept to understand. Some people have the impression that the main reason that rates are going up under Obamacare is because of the law’s requirement that insurers cover people with pre-existing conditions. But that accounts for only a fraction – around a quarter – of the rate hike. The rest comes from all the other things that Obamacare does, such as forcing people to buy richer insurance benefits; to buy products with all sorts of add-ons they might not need; to pay Obamacare’s premium tax; and to pay a lot more, if they’re young, to subsidize older individuals.
There is an important difference between these analyses and the one I conducted for California last week. Ohio has reported average premiums across the individual market, for everyone; for California, I looked at the lowest-priced individual-market plans for 25- and 40-year-old men, both pre- and post-Obamacare. We’ll need to go through Ohio’s individual rate filings, especially after they’ve been approved by the state, to get a more detailed sense of what is going on.
But the bottom line is this: President Obama and then-House Speaker Nancy Pelosi promised that premiums would go down for those who already have insurance. And yes, for those lower-income folks who benefit from the subsidies provided by other taxpayers, the costs they see may go down. But middle-class Ohioans will pay more in taxes to pay for those subsidies, and more in premiums. It will be interesting to see how those Ohioans feel about that.
UPDATE 1: Dave Dysinger, who runs a growing manufacturing business in Dayton, is worried about being subjected to the employer mandate as premiums in Ohio rise, according to the Dayton Daily News:
Dave Dysinger of the Dayton-based precision machine business, Dysinger Inc., said business is booming, putting pressure on the firm with just under 50 employees to expand its workforce.
But if the company crosses the 50-worker threshold, it would be forced to comply with the provisions of the health care law or pay a fine.
The cost of insurance could skyrocket if Dysinger brings on a fresh new crop of younger workers, but the law would limit how much of that cost he could pass onto his employees in the form of deductibles, co-payments, and coinsurance.
“I am very concerned about what’s going to happen with the cost of health care,” Dysinger said. “But I’m going to save my whining until I actually see what’s going to happen.”
UPDATE 2: For those who are curious about the details of the Society of Actuaries’ estimate about pre-ACA insurance costs (which were cited by the Ohio Department of Insurance), the SOA calculated that “average costs in the non-group market” pre-ACA were $223 per month. The SOA estimates that post-ACA, non-group coverage will cost $403 per month, an increase of 81 percent.
According to SOA, that $223 figure reflects a risk pool in which 21.4 percent had a chronic condition. 1.7 percent of non-group individuals who were “high risk” were outside of that pool. If you incorporate them, the average cost goes up to $254; this leads to a premium increase of 59 percent by the SOA estimates. In other words, 22 percent of the absolute increase is due to guaranteed issue, and 59 percent is due to other factors.
There is one issue to nail down with the Ohio Dept. of Insurance’s figures. The Society of Actuaries data appears to describe medical costs; the Dept. of Insurance figures appear to describe rates. Rates include administrative costs, medical costs do not. If we assume an administrative cost ratio of 20 percent, the SOA baseline is closer to $279, which means that the rate shock is around 51 percent, not 88 percent.
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