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MN2020 - Obamacare is Coming
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Obamacare is Coming

July 09, 2013 By Kevin George, Policy Associate

Arguments about health insurance rate shocks when Obamacare kicks in willfully disregard key facts behind the policy.

Claims regarding rate shock are based on the premise that the cheap plans on the market today are no longer going to be available, and the new plans will be incredibly expensive. To get there, many conservatives go to eHealthInsurance.com, a private insurance marketplace, and compare the cost of the cheapest rates on the private market to the cost of plans on health insurance exchanges.

As Ezra Klein states, however, comparing eHealthInsurance.com rates with Obamacare rates is “not just comparing apples to oranges. It’s comparing apples to oranges that the fruit guy may not even let you buy.”

Many of those who are uninsured right now would not be eligible for the $60/month plans available on the market. That’s because these prices assume you have no risk factors, and are a young, healthy individual. After filling out the health forms, most uninsured folks would find themselves on the hook for considerably more than $60/month, for the same coverage.

Think of it as one of those car commercials with a rock bottom interest rate. In reality, most people don’t actually have the credit score to qualify for that rate. Exchange plans will show the price you'll pay up front, so the price you see is the price you pay. Furthermore, the new plans are required to offer more than just the bare bones coverage, which contributes to a higher average cost. But, in the long-term, patients’ out-of-pocket costs will be less with the new plans.

Those ginning up fear about rate shocks only refer to the monthly premium, which is a pretty shoddy cost-measurement tool. Monthly premiums aren’t the limit of what you’ll be spending on any plan. Think about the current system’s co-pays, deductibles, and procedures insurance doesn’t cover.

Using the median household income ($28,693) for Minnesotans younger 25, I went to eHealthInsurance.com and found myself a plan based on my age, location (a 23-year-old St. Paul resident) and a couple of basic health questions. Medica’s Solo plan with a $12,600 annual deductible was one of the cheapest, with a monthly premium of $69.39. This comes with a total out-of-pocket expense limit of $13,600 in a calendar year. (Excluding the monthly premium, that’s the most you’d have to fork over for one year.)

The most stripped down coverage level for Obamacare plans is the Bronze coverage, which is expected to have a total out-of-pocket expense limit of $6,400.

Since Minnesota's exchange is still in development, so it's not possible to make an exact comparison. However, one state that can possibly act as a guide is California, which has the first official Obamacare plans on a exchange. It shows I would pay a $137 monthly premium for my plan, and would have that $6,400 out-of-pocket limit. What it boils down to is that I would pay an extra $67/month to reduce my total liability by $7,200/year.

I know what people are thinking, I’m a healthy young person. Why should I pay that much extra to lower my out-of-pocket, when I’ll likely never need it?

Consier this: Medica estimates the average price of an appendectomy in St. Paul (a procedure two of my closest friends had at 22), to be between $6,881 and $10,500. Even on the lower end, say $8,000, you're already well above the out-of-pocket threshold for the Obamacare plan, but still well below the cheaper plan.

Add in a second emergency, and you’re looking at a pretty painful year on the pocketbook under the cheap plan.

All right, maybe you can stay healthy over a few years, but let’s consider what could happen over a decade. Reaching that $13,600 out-of-pocket threshold while on the Bronze plan from Obamacare instead of the Medica plan would pay for 107 months of the additional $67 premium, or nearly 9 years’ worth. 

Finally, conservative claims about rate shock tend to ignore the premium subsidies included in the Affordable Care Act. Individuals and families making up to 400% of the federal poverty line – $45,960 for an individual and $94,200 for a family of four – are eligible for tax subsidies on their health care premiums. Considering that the vast majority of uninsured Minnesotans live under the 400% of poverty level, nearly all of them would be eligible for some measure of subsidy.

In the recently released California plans, a 21-year old making 150% of the federal poverty line, or $17,235/year, or less would pay nothing for the most affordable Bronze-level health care. That’s a $0/month premium. And while that might be a shocking rate, it’s sure not going to be bankrupting anyone.

Rate shock is a myth, designed only to scare the public into believing that the most meaningful health care reform in recent history will bankrupt people everywhere. What I’ve written above is only the immediate dispelling of the fear mongering. A number of factors will better control costs across the system over time, as the total cost of health care decreases due to everyone having insurance.

We need facts, not rhetoric, to prevail in order to make the transition to the Affordable Care Act as smooth as possible. That starts with not allowing the myth of rate shock to continue. People are going to save money on health care with minimum-standard plans. We’ll all be richer, and healthier, for it.

Thanks for participating! Commenting on this conversation is now closed.

6 Comments:

  • Karen says:

    July 15, 2013 at 7:03 am

    Your estimate of the cost of an appendectomy is painfully low. I recently had DAY SURGERY, was in the facility for FOUR HOURS, and the bill was $19,000. After insurance negotiation it was half that and I paid 20%. But I also paid the surgeon, anaesthesiologist, pathologist and followup office visits at 100% to meet my annual deductible. Without insurance you cannot expect to get the same fees for services that the insured have.

    • Kevin George says:

      July 15, 2013 at 9:20 am

      I agree entirely that not having insurance would cause that number to skyrocket. However, the example I use here is intended to show the difference between a current-market private plan and an Obamacare plan. The number given in the piece is the estimate of a negotiated cost. Thanks for reading.

  • Randy McLaughlin says:

    July 17, 2013 at 11:14 am

    The fact is that only a few months before many people are required to buy into it, we can only speculate on what coverage will be available and what it will cost.  That is a flaw in Obamacare’s design.  There are no facts only speculation.  There are no assurances only mandates, complex and poorly engineered rules and a host of possible unintended consequences.  What good is it to avoid being bankrupted by the cost of an appendectomy only to be bankrupted by the monthly cost of insurance?  What good is it to lay out good money month after month only to be bankrupted by the copays and out of pocket expenses when appendicitis strikes.  Who but Congress would dare to call an unexpected $6400 out-of-pocket expense “affordable”.

    How about an honest speculation of cost to a 60 year old rather than the rose colored view of what coverage might cost to a 25 year old?  Even if the 60 year old qualifies for a tax subsidy, the subsidy is the same but the monthly cost of insurance is guaranteed to be three times higher.  An older American scraping by on odd jobs and managing to stay above the poverty line is not likely going to find that the tax subsidy knocks their insurance premium down to zero.  And the extra money they have to earn in order to pay for insurance or to cover the copays counts against how much subsidy they receive.  In what way is it progressive to require someone to pay for an overpriced product of an inefficient system and then tax them on the money they have to earn in order to meet that mandate?

    When you pay an insurance company to cover more, you are betting against the house.  Sure you may be hit by a series of misfortunes and end up being glad you went for the lower deductible, but on average you loose and the insurance company wins.  The Unaffordable Care Act requires free preventative care, but who is going to pay for it?  The cost will ultimately be paid by the consumer, rolled into the cost of insurance and inflated for the convenience of having it look like it’s free.

    What is a supposedly progressive blog doing promoting and defending a horrendously regressive piece of corporate welfare?

    • Kevin George says:

      July 17, 2013 at 3:25 pm

      Randy, thanks for reading. To address a couple of your points:

      $6400 is very affordable compared to $13600, which is the point that I’m making here. Obviously it would be best to lower that further, which you can do for a slightly higher monthly investment in the premium. Further, you’re considerably less likely to go bankrupt with health insurance than you are without health insurance (which is the entire point of insurance in the first place).

      Let’s look at a 60-year old, as you’ve suggested. The subsidies are not a set figure, they’re proportional to income and cost of coverage regardless of age. This means that a 60-year old is going to receive a considerably larger nominal subsidy than the 23-year old. If you go to MNsure’s calculator (link included at the bottom), you’ll see that a 60-year old individual making twice the federal poverty line (FPL), roughly $23,000, would receive a $661/month subsidy toward the $782/month premium, leaving him with a $121/month cost of health insurance. The calculator assumes Silver coverage, not Bronze as I’ve used above, so this would be for even better insurance. It’s also cheaper! And, if you wanted to reduce that cost more, the 60-year old could reduce coverage to Bronze and pay less per month. For comparison, a 60-year old making only the FPL or slightly above would be eligible for MedicAid and wouldn’t be purchasing through the exchange.

      Finally, yes, health insurers make a profit. It is a business afterall. But looking at the long term, people are much more likely to save money by having good health insurance. Which is why we buy it in the first place.

      MNsure calculator: http://mnsure.com/hix/calculators/main/IndividualCalculator.jsp

      • Randy McLaughlin says:

        July 17, 2013 at 5:20 pm

        I contest the assertion that people are likely to save money by having health insurance.  Most people lose money.  That’s the way insurance works.  That’s what provides the funds that pay for those unfortunate few who suffer major illness or injury.  The basic problem is collecting funds from those who are well and financially productive in order to provide medical care to those who need it. Without such a funding mechanism you end up with a third-world medical system. Congress tried to patch a broken system by making it more complex while retaining much of its inequities, inefficiencies and broken assumptions.  They failed.  It sure looks like the per-capita cost of medical care in the US will continue to be at least twice as high as in other industrialized countries and more of that crippling cost will be borne by people of limited means.

        $6400 is not affordable if you only have $1000 in the bank.  I don’t know what planet the Congressional Democrats belong on if they think that ordinary people have that kind of money sitting around.  Get sick in December and that might just balloon to $12800 if the illness continues into January.  Yes, you can bring the out of pocket down by paying higher premiums but be bankrupted by the exorbitant monthly cost.  Generally those highly monthly premiums only pay off if you are unlucky enough to be sick all the time.

        Thanks for the link to MNsure’s calculator and to all the jargon associated with it.  It did not come up when I was trying to find some factual information.  FPL?  I’ve never had to pay attention to it up until now.  It’s always stated for a single individual or a family of four.  You have to dig to find out what it is for a couple.  Bronze?  Silver? What does that mean?  Modified Adjusted Gross Income?  Do our friends in Washington really expect everybody to spend countless hours trying to understand the jargon and the convoluted rules and to figure out what it means for their specific case?  It’s much easier to let Fox News do the interpretation.

        But note the disclaimers on the calculator.  Estimated premiums.  Estimated tax credits.  Does Minnesota’s calculator come up with the same figure as Wisconsin’s?  It does not give one much confidence in the results.  The calculator also fails to mention that you may not be eligible for the credit if your spouse’s employer offers insurance even if the additional cost is greater than that of an unsubsidized silver plan.  My understanding is that the tax credit only applies to one of the plans.  You don’t have a choice.  Or maybe you make the calculation assuming that your income as a couple will be $62,040 and you end up making a dollar more and as a result lose $3492 in tax credits.  Now that’s a regressive tax!  Not too long ago the debate was whether someone making $250,000 was rich.  Now, according to Obama and company the line is drawn at $62,040.  Adding more complexity and inequity does not fix our broken health care financing system.

        I suspect that people in Canada don’t have to waste their time on convoluted jargon or toying with silly calculators.  Progressives have been duped into promoting and defending privatization and what is essentially a capitation (or poll) tax on the unfortunate. We are paying a huge premium for the sake of being able to financially penalize people for their misfortune.

  • Jim Mork says:

    November 13, 2013 at 3:48 pm

    You know, the dropped policies were totally predictable. They should have admitted it up front. Getting a law passed based on wistful hopes is just part of a game politicians play with voters. The repeal of the Glass-Steagal Act was more of the same.  Of course an insurance company isn’t going to permit anyone to hang onto a policy based on obsolete economics.  Obama didn’t make them drop policies, but he sure is smart enough to know they would do it.  Frankly, promising universal healthcare should have been totally unnecessary.  A picture of Sarah Palin and “do you want THIS in the White House” should have been enough to secure election.  Because if the prospect of a woman dumber than Dan Quayle isn’t enough, then the country is too stupid to live.