Premium Increases Under Obamacare May Be Overstated

Photographer: Patrick T. Fallon/Bloomberg

The U.S. health-care law prohibits insurers from charging sick people more than healthy people or denying them coverage, and limits what companies can charge older people relative to the young. Close

The U.S. health-care law prohibits insurers from charging sick people more than healthy... Read More

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Photographer: Patrick T. Fallon/Bloomberg

The U.S. health-care law prohibits insurers from charging sick people more than healthy people or denying them coverage, and limits what companies can charge older people relative to the young.

Predictions of sharp increases in health-insurance premiums for people getting coverage under the U.S. Affordable Care Act have been overstated and many states will see little to no change, researchers at Rand Corp. found.

Out-of-pocket premiums for most individuals who buy health plans through new insurance exchanges will decline because of federal subsidies, the Santa Monica, California-based nonprofit research group said today in a report. The researchers looked at insurance markets in 10 states to project costs as core parts of the 2010 health law kick in next year.

“Rates for policies in the individual market are likely to vary from state to state, with some experiencing increases and some experiencing decreases in cost,” Christine Eibner, a Rand senior economist and the study’s lead author, said in a statement. “But our analysis found no widespread trend toward sharply higher prices in the individual market.”

Starting Oct. 1, people without health insurance may sign up for coverage through online insurance marketplaces, called exchanges, in each state. The health law requires that most Americans obtain insurance by next year or pay a fine. About 7 million people are expected to gain coverage through the exchanges next year, the Congressional Budget Office has said.

The Rand study was conducted on behalf of the U.S. Health and Human Services Department and looked at insurance rates in Florida, Kansas, Louisiana, Minnesota, New Mexico, North Dakota, Ohio, Pennsylvania, South Carolina and Texas.

Rate Shock

Republican state officials in Ohio, Indiana and Georgia have warned of “rate shock” next year for young, healthy people who previously could buy inexpensive insurance plans. The Rand study estimated premiums in 2016 without examining actual 2014 rates that have been released for some states, including Ohio, Eibner said in an interview.

“Some people buy more generous coverage because of the law and that will lead to increased costs,” said Eibner, who works at Rand’s office in Arlington, Virginia. “In my mind, that’s not the same as rate shock because the person will be getting a better plan.”

The health-care law prohibits insurers from charging sick people more than healthy people or denying them coverage, and limits what companies can charge older people relative to the young. The result is that young, healthy people are expected to generally see higher premiums while older and sicker people see decreases, or are able to obtain coverage they previously wouldn’t have been offered.

Premium Discounts

Government subsidies will be available to offset higher premiums, and the Rand study said more than 60 percent of people who shop for exchange plans will get a discount.

In half the states Rand studied, and for the U.S. as a whole, the health-care law will cause no statistically significant change in premiums, the researchers said. There may be premium increases of as much as 43 percent before subsidies in Minnesota, North Dakota and Ohio, Rand estimated.

In Louisiana and New Mexico, premiums may decline as younger, healthier people are drawn into insurance markets and the Affordable Care Act limits the amount of premium revenue insurers can keep for their costs and profits, Rand said.

The percentage of the U.S. population that will remain uninsured, Rand said, will fall to 8.2 percent by 2016, compared with 19.6 percent if the law didn’t exist.

To contact the reporters on this story: Drew Armstrong in New York at darmstrong17@bloomberg.net; Alex Wayne in Washington at awayne3@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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