When California unveiled the bid prices for its health care exchanges — the part of the Affordable Care Act where people without employer-sponsored insurance will shop for plans — on May 23, ObamaCare supporters were jubilant that the bids came in lower than expected. At least in California, the promises of ObamaCare — affordable insurance for all — seem to be coming to fruition.
Then, a few days later, Avik Roy, a conservative health columnist at Forbes, decided to compare the prospective exchange prices with what individuals would pay today. So he created two fictional characters, a healthy 40-year-old male and healthy 25-year-old, neither with any pre-existing conditions, and sought out health insurance for them at eHealthInsurance.com. What he discovered, he said, was the "rate shock" conservatives have been warning about since before ObamaCare passed.
Roy found that the average non-smoking 25-year-old Californian would pay $184 a month for the cheapest plan under ObamaCare, or $205 a month for the comprehensive "bronze" plan, but could get a plan today for $92 a month through eHealthInsurance. For a 40-year-old non-smoker in California, the bronze ObamaCare plan will cost $261 a month, versus $121 a month through eHealthInsurance, Roy says.
In other words, for the typical 25-year-old male non-smoking Californian, ObamaCare will drive premiums up by between 100 and 123 percent.... [For 40-year-olds,] ObamaCare will increase individual-market premiums by an average of 116 percent. For both 25-year-olds and 40-year-olds, then, Californians under ObamaCare who buy insurance for themselves will see their insurance premiums double. [Forbes]
Roy got a lot of pushback. Ezra Klein at The Washington Post agrees that a very small number of people "will find the new rules make insurance more expensive," but says that's because "their health insurance was made cheap by turning away sick people." Comparing the deceptive rates from eHealthInsurance to the options under the ObamaCare exchanges is "not just comparing apples to oranges," Klein says. "It's comparing apples to oranges that the fruit guy may not even let you buy."
Rick Ungar at Forbes was more incredulous. When he read Roy's column, he says, "I must admit that it took a moment to sink in as my first reaction was to laugh. eHealthInsurance.com? Seriously?"
Was Avik really using teaser rates published on the internet by eHealthInsurance.com as his point of comparison? I mean, you don't have to be a healthcare policy expert to know that websites like eHealthInsurance.com always flash low rates in front of you — prices that maybe one person in a thousand might actually hope to achieve — to tickle the interest of a potential customer.
It's not that the flashing low prices are necessarily false as there is always going to be someone who can qualify for the exceptionally low rate — although even they will often find that the actual details of what is covered and not covered may be far less beneficial than they might hope.... Have you ever suffered a migraine headache? If you have, be prepared for a substantial increase over the teaser price stated on a website like eHealthInsurance.com. Ever experience a summer of hay fever? Your rate will skyrocket as a result. Did you have acne as a teenager? Uh-oh... price is going up. [Forbes]
Roy responded to the criticism in a few ways. First, he points to Klein's own visit to eHealthInsurance, where he found a $109-a-month plan for Irvine, Calif., that turned down 14 percent of applicants and another 12 percent were charged more than $109. "To Ezra, it's galling that three-fourths of his compatriots can pay $109 for health insurance," Roy says. Liberal columnists now concede that premiums will go up, but "they're justifying it by saying that 'rate shock' will help a tiny minority of people who can't get insurance today."
The fact that ObamaCare dramatically raises premiums on young people is a big deal, because the majority of uninsured people are young. It's the fact that insurance is already so expensive that leads so many young people to opt out. They're perfectly healthy; they don't have a lot of money; but they're being asked to shell out thousands of bucks for policies they won't use. And ObamaCare's solution to this problem is... to force them to pay more? We'll see how that goes. [Forbes]
Ugh, says Jonathan Cohn at The New Republic. "If you want to know why we can't have an honest debate about ObamaCare, all you have to do is pay attention to some recent news from California — and the way a highly distorted version of it, by one irresponsible writer, has rippled through the conservative press." Anyone who's ever tried to buy health insurance on their own will have "a pretty good idea of how ridiculous Roy's experiment was," Cohn says. And the "teaser rates" are only the tip of the iceberg:
Insurance bids from eHealthInsurance are for new customers only. Insurers who sell to individuals — that is, insurers who sell in the "non-group market" — frequently raise rates dramatically, and unpredictably, because a particular group of customers have become too expensive to insure. In other words, if you buy on eHealthInsurance, you might get a reasonable rate the first year, only to experience eye-popping increases a year or two later. That won't happen on the exchanges, because, under ObamaCare, insurers can't charge different prices to new and existing customers.
But the most amazing part of Roy's entry was what it didn't say.... He said absolutely nothing — not a single word! — about the federal subsidies available to people with incomes below 400 percent of the poverty line. (That's about $46,000 a year for a single adult, or $94,000 for a family of four.)... *The majority of people buying coverage on the exchanges will get subsidies.* It's difficult to be certain about the overall effect on all Californians buying coverage... but it's entirely possible (I'd say likely) that, with the subsidies, the majority of people buying on the exchange next year will pay less than they pay for insurance today. [New Republic]
Here's the deal, says Josh Barro at Business Insider. "If you're young, healthy, and affluent, your insurance is getting more expensive" in California next year. And "if you're old, sick, and poor, it's getting cheaper." Whether you think ObamaCare is a good or a bad thing, it's important to recognize that "what's happening in California is exactly what was supposed to happen."
ObamaCare — is designed to be a fiscal transfer from the young to the old, the healthy to the sick, and the rich to the poor. It's not just ObamaCare: Any system that shifts health expenditures from the private sector to the public sector causes transfers like this. If we had no government financing of health care at all, healthy people with high incomes would spend a very small percentage of their income on health care, and the sick poor would spend a large percentage. If we had a fully socialized system where the government paid for everything, rich people would bear most of the cost of providing health care to everyone. And systems that involve a split of public and private expenditure — including ObamaCare — have distributional effects somewhere in between.
What makes ObamaCare's redistribution look odd, even "shocking," is that the law was structured to move much of the redistribution off the government's books.... instead of hiding the transfer from the young and healthy as part of a tax bill that finances the whole government, ObamaCare causes it to show up in the form of a higher insurance "premium." That tax increase will make some young and healthy people worse off. But they would also be worse off if the government provided direct health care subsidies to the old and the sick and used a broad-based tax like a payroll tax to finance those subsidies. In fact, that's how we finance Medicare, which is a huge fiscal transfer from the young to the old. [Business Insider]
ObamaCare is the law of the land, but the rules for how we transfer wealth in the system "aren't set in stone and we'll be tweaking the rules that govern them for decades to come," Barro concludes. Instead of quarreling about rate shock, we should be "thinking about which transfers are warranted and which aren't."
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