Don’t believe rate projections..

We get a fair number of questions about what the rates for health insurance products sold in Covered California will be. The answer is that for some folks, we simply don’t know, and we may not know for a few more months. Insurers will be submitted their initial bids in the next week or two, and then will begin negotiations between Covered California and the insurers.

There’s been a few projections circulating projecting how health insurance rates will be impacted by all the changes coming into effect in 2014.

Don’t believe them.

These projections often serve to obscure more than they illuminate. It’s hard to rebut them because the truthful answer is complicated and uncertain. The answer that rates will go up “as much as X%” is more wrong than “we don’t know” and “it depends.”

The short answer is that most people won’t be impacted. And most who are impacted will see savings, but 0-2% of the public might pay more for better coverage.

ONLY THE INDIVIDUAL MARKET: The Affordable Care Act largely preserves the status quo for those in employer-based coverage (half of California) and in public programs like Medicare and Medicaid (over a third). Most changes to benefits were largely already incorporated.

The major changes in 2014 are for folks who buys coverage as individuals, the most expensive, least efficient way to get insurance where the individual consumer is all alone at the mercy of the big insurers. This market in 5-10% of the overall population.

INCOME-BASED PREMIUMS: There is something we know certainly, which is that for a majority of people (up to 400% of the poverty level, which is about $95,000/year for a family of four, and above median income), those buying in Covered California will be eligible for subsidies to ensure that they don’t pay more than a percentage of income for a basic coverage package–based on a sliding scale of 2% to 9.5% of income. The calculation on the Covered California website can actually be quite precise about this, because if a premium if more than the stated percentage, then federal tax credits and subsidies will make up the difference.

NOT THE SAME PRODUCT: So the folks who are impacted by the pre-subsidy premium level are those above 400% of the poverty level. And to them, there are factors in the ACA that both serve as an upward and downward pressure on rates.

For example, these rates are almost all of health plans that provide more coverage and service. The standards for essential health benefits, for removing caps on coverage, for prohibiting rescissions and ban on pre-existing conditions, means the news plans offer more coverage than those from 2013 and in the past. So if a premium goes up 20% but the plan is offering 50% more coverage–is that a rate increase or decrease? It certainly is a better value.

Most of the studies also make comparisons to what will be a “Gold” or “Silver” plan in the Exchange, not recognizing that people will be able to purchase down to a cheaper “Bronze” or for young adults a “catastrophic” plan. In many cases, the actuarial value of these bare bones plans may still be higher than what they have in the individual market. Folks may pay more in premium but less in cost sharing.

EVERYONE IS DIFFERENT: But mainly, the projections try to give an overall picture, but the impact will be different for each individual. In the current individual insurance market, people are charges based on their individual characteristics: their health status (if they are covered at all), their age, their location, etc. Since everybody will start at a different place, by definition the change will be felt differently as well–even as we move to standardized health plans, limits on age rating, and no allowance for other changes.

Most will see their rates go down. There may be a small slice of folks who are younger and healthier and wealthier that may pay more for premiums for now (for a different and better health plan), but perhaps not when they lose one or more of those blessings.

FACTORS BOTH WAYS: Just like increased benefits will have an upward pressure on rates, there are several factors that will have a downward pressure as well. Having millions of people become enrolled, with a likely healthier profile of folks that is who is currently insured, should help spread the risk and cost of care and lower the overall price. We all benefit if the pool of newly enrolled is bigger and broader rather than small and sicker.

REGULATION, NEGOTIATION, AND COMPETITION: Also, the insurers will have new oversight. Already insurers have had to subject themselves to “rate review” of their rates in order to justify them. (A pending ballot measure on rate regulation continues.) In addition, the insurers file their bids in the next few weeks, to begin negotiations at Covered California.

Moreover the website will provide a a structured marketplace, where patients can make apples-to-apples comparisons and instill real price competition. No longer are patients trapped in one plan or another because of pre-existing conditions, but they can “walk with their feet.” If any insurer priced too high, they will lose customers in short order.

INSURER STANCE: Ultimately, the base rates (not including subsidies) depend on the insurer, and their approach to this new world. If an insurer wants to be cautious about the risks, the insurer may may price their products higher (but then bear the risk of pricing themselves above their competitors). At the same time, if the insurer wants to claim significant market share out of the gate, they would have an incentive to price aggressively, to be lower than their competitors. An insurer who claimed significant market share would have
a better negotiating position when dealing with providers in a given area.

There’s a lot of factors at play, a lot of variables and assumptions. So please consider any projections of premiums with extreme caution.

We’ll see the premiums soon enough.

Health Access California promotes quality, affordable health care for all Californians.
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