California Fudges the Math on Obamacare

Some supporters of Obamacare are willing to try every trick in the book to convince a skeptical public that the law may actually lower health insurance premiums.  

Some supporters of Obamacare are willing to try every trick in the book to convince a skeptical public that the law may actually lower health insurance premiums.

Case in point:Covered California, the state-run health insurance exchange, yesterday heraldeda conclusion that individual health insurance premiums in 2014 may be less than they are today. Covered California predicted that rates for individuals in 2014 will range from 2 percent above to 29 percent below average small employer premiums this year.

Does anything about that sound strange to you? It should. The only way Covered California's experts arrive at their conclusion is to compare apples to oranges -- that is, comparing next year's individual premiums to this year's small employer premiums.

They're making this particular comparison, they explain, because they believe that the marketplace for individually purchased insurance will look like the marketplace for small employer-purchased insurance next year. For example, the state already requires insurers to issue policies to all comers in the small employer market. Premiums are therefore higher today for small employers than for individuals purchasing coverage on their own.

What this means, however, is that Covered California is creating for itself a very favorable and already higher baseline from which to compare next year's individual health insurance premiums. That's how they're able to create the appearance that Obamacare's reforms will lower individual premiums.

To put it simply: Covered California is trying to make consumers think they're getting more for less when, in fact, they're just getting the same while paying more.

Yet there are many plans on the individual market in California today that offer a structure and benefits that are almost identical to those that will be available on the state's health insurance exchange next year. So, let's make an actual apples-to-apples comparison for the hypothetical 25-year-old male living in San Francisco and making more than $46,000 a year. Today, he can buy a PPO plan from a major insurer with a $5,000 deductible, 30 percent coinsurance, a $10 co-pay for generic prescription drugs, and a $7,000 out-of-pocket maximum for $177 a month.

According to Covered California, a "Bronze" plan from the exchange with nearly the same benefits, including a slightly lower out-of-pocket maximum of $6,350, will cost him between $245 and $270 a month. That's anywhere from 38 percent to 53 percent more than he'll have to pay this year for comparable coverage! Sounds a lot different than the possible 29 percent "decrease" touted by Covered California in their faulty comparison.

While Covered California acknowledges that it's tough to compare premiums pre- and post-Obamacare, at the very least, it could have made a legitimate comparison so consumers could fairly evaluate the impacts of Obamacare.

Unfortunately, what California authorities have done here is all too common in efforts to make Obamacare look like a good deal for American consumers. In recent weeks, Democrats have pointed to projections from some of the country's most heavily regulated states, including Vermont and Maryland, to argue that premium increases next year won't be as bad as people think. But many of these states -- including California -- already have in place some or all of the reforms that Obamacare mandates.

To see the true impact of the law, we'll have to wait for less-heavily-regulated states to reveal what next year's premiums will look like. Let's hope they don't resort to the same misleading tactics that California authorities did.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

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    Lanhee J Chen

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