Late last week, a post by Avik Roy on possible increases to health insurance premiums in California went viral. So viral, in fact, that it was apparently Forbes’ fastest ever to reach a million page views:
— Kate Pierce (@Kate_Pierce) June 1, 2013
It’s pretty easy to see why. The headline asserts that the Affordable Care Act could drive individual insurance premiums in California up by as much as 146%, and contrasts with a report from California that showed that premiums would rise by less than what was expected.
While people don’t understand the law particularly well, they do understand what they pay for health insurance.
One problem: That number, the number that Drudge Report, The Daily Caller, and others picked up is misleading.
In order to get that figure, Roy went to a website called eHealthInsurance.com, a marketplace for individual health insurance, and compared the cheapest plans there to the projected plans that will be offered in California’s insurance exchange, a competitive marketplace for individuals to buy coverage.
However, the plans he uses to compare offer what’s called a “teaser rate” — one based on age without any knowledge of medical history. If you have pre-existing conditions, that premium goes up or you’re ineligible. So the $92 median plan he comes up with isn’t one that very many people would ever actually pay.
A number of reviews found by Rick Ungar at Forbes of that particular provider said that quoted rates were nowhere near what people actually pay.
So if you’re a 25-year-old in perfect health with a perfect medical history who doesn’t get health insurance from your employer, but has an income in excess of $45,000 if single, or $96,000 with a family of four (there are subsidies available for people up to four times the federal poverty rate), you might be able to get that premium for a year, after which the provider is perfectly free to boost rates.
And while this theoretical person and other young, healthy, and wealthy people might see higher premiums, older, poorer, and sicker people will likely pay lower premiums than they do now.
There’s a tradeoff there that’s worth debating, whether those transfers are worthwhile or efficient.
Premiums for some people are going to rise due to Obamacare. Some might rise a lot, provoking “rate-shock.”
California’s figures, predicting anywhere between a 26% decrease in premiums to a 2% increase might be too low. But rates won’t swing 100 plus per cent in the other direction. And higher rates for some is exactly what the law is designed to create.
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