Under Obamacare, Will Out of Pocket Spending Be Higher?

Not long ago, the Fear-Mongers were warning that under the Affordable Care Act, insurance premiums would spiral, causing “sticker shock.” Then the rates were published, and it turned out that, thanks to transparent markets in the exchanges, insurers had to compete on price, and premiums are lower than expected.  

But don’t worry, reform’s opponents haven’t run out of talking points. (I expect that long after most of the country has begun to enjoy the benefits of Obamacare, out-of-touch conservatives still will be muttering to themselves – rather like Japanese officers who held out in the jungles of the Philippines after WW II ended, unable to accept the fact that they had lost the war.)

In search of a new meme, they have latched onto the idea that, in the exchanges, customers will face “Staggering Out-of-Pocket Costs.” Sure, premiums may look low they say,, but wait until you try to use the policy and find yourself laying out $6,000. . Not long ago, Fox News summed up the argument: If the policy you bought in the individual market is cancelled because it doesn’t conform to the ACA’s rules, and you are forced to purchase coverage in an exchange, co-pays and deductibles will soon make you realize that the ACA is really “The Unaffordable Care Act.” 

Fox picked up the theme from a Bloomberg News story that went viral:“Obamacare Deductibles 26% Higher Make Cheap Rates a Risk,”  the Bloomberg headline screamed. As evidence, Bloomberg pointed to a survey of seven states, done by HealthPocket Inc., that compares the average deductible a consumer will face if he purchases a Bronze Plan in an Obamacare exchange to the average deductible in the private-sector market where 5 percent of Americans have been buying their own coverage. (These are the policies that are disappearing because they don’t meet the ACA’s standards.)

It turns out that the survey greatly exaggerates out-of-pocket spending in the Exchanges by focusing only on Bronze plan.  Meanwhile, the media ignores the most important number: what is the Maximum that an insurer can ask you to pay out of pocket?

The problem with many of the policies that are now being cancelled is not just that they were studded with holes  (some didn’t cover hospitalization; some didn’t cover chemo), but that in many states, a family could be asked to pay $30,000—or more—in co-pays and deductibles. . In a few states, there was no cap on the a patient’s liability.I This is how families lose their homes.

I’ve written about this here on healthinsurance.org. Read the entire post and, if you like, come back here to comment.

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Reverse “Sticker Shock”—Why are Insurance Rates in the State Marketplaces Lower Than Expected? — Part I

 

Even Forbes’ columnist Avik Roy is recanting.  Earlier this month he acknowledged that under Obamacare, many Americans who buy their own coverage in 2014 will find that insurance is significantly more affordable than it was in the past:  “Three states will see meaningful declines in rates: Colorado (34 percent), Ohio (30 percent), and New York (27 percent).”

Colorado, Ohio and New York are not unique. As states announce the prices that carriers will be charging in the online marketplaces (or “Exchanges”) where Americans who don’t have health benefits rate at work will be purchasing their own coverage, jaws are dropping. Rates are coming down, not only for those individuals, but for some small business owners who will be buying insurance for their employees in separate SHOP (Small Business Health Options Program) Exchanges.

What may be most surprising is that premiums will be lower, not only in liberal Blue states but in some Red states that are opposed to Obamacare.

What is making health insurance more affordable?

First, the majority of individuals shopping in the Exchanges will be eligible for government subsidies that will go a long way toward covering premiums. In the past I have written about how these tax credits will help young adults (18-34).  But older Americans also will benefit. Fully 30% of those who receive tax credits will be 35-54, and 12.5% will be 55 or older.  This is important because in the Exchanges, insurers  in every state except New York and Vermont will be allowed to charge a 60-year-old three times as much as they would charge a 20-year-old for exactly the same policy.  Without subsidies many would find insurance totally unaffordable.

The second reason premiums are significantly lower than expected is that as I have explained on healthinsurance.org  in the state marketplaces insurers are forced to compete on price. All policies sold in the Exchanges must cover the same essential benefits, and follow other rules that will make the plans look very much alike. The only way for a carrier to distinguish himself from the crowd will be to charge less—or have a better network of providers. But the younger customers that carriers covet care far more about price than about the network.

Third, in many cases, state regulators have been clamping down. In Portland Oregon, for example, regulators forced insurers to cut their proposed rates by an average of nearly 10%. Three of the 12 insurance companies in that market had to lower their rates by more than 20% f

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Who is Douglas Holtz-Eakin and why is he saying such terrible things about health reform?

Today, the House Energy and Commerce Committee’s Subcommittee on Health will hold a hearing entitled: Unaffordable: Impact of Obamacare on Americans’ Health Insurance.  (Always nice to know that our elected representatives are keeping an open mind.)

Prominent on the list of witnesses: “Douglas Holtz-Eakin.” Even before reading his testimony, I knew what Holtz-Eakin would say: young, health Americans should brace for “sticker shock.”  Conservatives like Holtz-Eakin tend to stay on script. However stale the rhetoric, they firmly believe that if you repeat a sound-bite often enough, people will believe it.                                     

                                        Who is Douglas Holtz-Eakin?

If you recognize the name, it’s probably because Holtz-Eakin has become a familiar figure in the mainstream media, quoted in the New York Times, writing Op-eds for Reuters and Politico.com, and appearing, not only on Fox Business News, but on CNN and the PBS’ Newshour.

Alternatively, “Holtz-Eakin” may ring a bell because he served as a member of George W. Bush’s Council of Economic Advisers (CEA), and as Director of Bush’s Congressional Budget Office (CBO.)

In a remarkably candid 2011 interview, Holtz Eakin recalled his tour in the Bush administration:

“Going into the summer of 2001, things were getting worse. . . When we first went in and talked to the President, Glenn [Hubbard] and Larry Lindsey said, ‘Mr. President . . . We’re probably not going to run a surplus on budget.  We’re going to run a deficit.”

Bush’s reply: “We’re not going to run a deficit. If you come in here with a deficit, you’re both fired. Go fix it.’”

We ended up running a budget surplus of one billion dollars,” Holtz-Eakin confided, “driven by gimmicks of remarkable proportions.”
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Ignore the Hype: Why Health Insurance Premiums Won’t Skyrocket in 2014

Health reform’s critics are sounding the alarm: in 2014, they say, health insurance premiums will climb, both for small businesses and for individuals who purchase their own coverage. “Hold onto your hat,” writes  Bob Laszewski, editor of Health Care Policy and Market Place Review. “There Will Be Sticker Shock!” 

Laszweski’s piece has been cross-posted on popular blogs, and his forecasts have been popping up in mainstream newspapers, including  USA Today Such wide circulation makes Laszewski’s warnings worthy of attention, and compels me to ask an important, if impertinent, question: Is what he says true?

Cherry-picking a CBO report

The Congressional Budget Office expects  that the ACA will have a “negligible” effect on the premiums that large employers pay for insurance, and most experts agree. But in the individual market, Laszewski claims that CBO projections show “10% to 13% premium increases.”

Here is what the CBO actually said:

About 57 percent of people buying [their own] insurance would receive subsidies  via the new insurance exchanges, and those subsidies, on average, would cover nearly two-thirds of the total premium.

“Thus, the amount that subsidized enrollees would pay would be roughly 56 percent to 59 percent lower, on average, than the premiums charged under current law.”

Wait a minute: “56 to 59 percent lower?” Where does Laszweski get “10 percent to 13 percent higher?

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