Here Are The Five Big Reasons Obamacare Is Changing People's Insurance Premiums

The fight we've been having for the last week over the president's broken "If you like your health plan, you can keep it" promise has not been very informative.

To hear liberals tell it, this is mostly a story of people losing their grip on "junk insurance." If people are paying more, it's because their new insurance plans will be better, and very often subsidies will offset the higher premiums anyway. That's not the whole truth.

To hear conservatives tell it, health care reform is disrupting an individual market that was working pretty well before government interference. That's not true either - the existing individual market is so dysfunctional that more than 3/4 of people who lack group coverage go uninsured. The existing market mostly works well for people who are healthy and have moderate to high incomes; the goal of the ACA is to make it work for everyone.

And the ACA will do that, making insurance accessible and affordable to tens of millions of people who lack it now. Some people who are already insured through the individual market will be better off, too: Their premiums will go down and/or their plans will get more comprehensive.

But at the same time, the law will make several million people worse off, by driving their premiums up, pushing them into plans that are less comprehensive, or causing insurers to switch them to plans with narrower provider networks that don't include their preferred doctors or hospitals.

Here are the five big ACA phenomena that are creating winners and losers in the individual insurance market:

1. Premiums will rise because plans will have to be more comprehensive than they used to be. They will have to cover 10 "essential" types of services, such as maternity care and prescription drugs. They will be subject to limits on deductibles and out-of-pocket payments. And they will have to have an "actuarial value" of at least 60%, meaning that the plan is expected to pay an average of 60% of participants' medical bills. Participants who are facing higher premiums due to this shift can also expect higher payouts, on average, though healthier participants may lose out on net.
2. Premium costs will be shifted away from the old and sick and toward the young and healthy. Currently, in most states, insurers have a pretty free hand to set premiums in the individual market based on expected claims. They charge people less if they're in good health and more if they're sick; less if they're young and more if they're old; less if they're male and more if they're female. Under the ACA, insurers won't be able to vary premiums on the basis of sex or health status, and age-based variation will be limited to 3:1. (The Kaiser Family Foundation estimates that, absent regulation, insurers would vary premiums by about a 5:1 ratio). These rules will mean lower pre-subsidy premiums for people who are old and sick, and higher premiums for people who are young and healthy.
3. Premiums will rise overall because the average individual market participant will be sicker than before. Currently, the rules that govern the individual insurance market are very favorable to people in good health; it should be no surprise that in many states the participant pool in the market is healthier than the population as a whole. As the ACA makes individual-market insurance available to a broader and more representative population, the average claims per participant will rise, necessitating higher average premiums. Because insurers are required to maintain one participant pool for all their individual market participants in a state, this will raise premiums for people who make few claims and lower them for people who make many.
4. About half of people (48%) who currently buy insurance in the individual market will be eligible for subsidies that cut their net premiums. These effects will be really divergent, creating a lot of winners and a lot of losers. For those who do get subsidies, they will tend to be large: $5,548 per family, reducing premiums by an average of 66%. But people with incomes above 400% of the poverty line (about $46,000 for a single adult) will get no subsidy at all, often meaning they will pay more than they could have today. Kaiser estimates that subsidies will offset enough of effect (2) to mean that 80% of people who currently buy individual market insurance would pay a lower premium post-ACA... If you don't take into account effects (1) and (3), which also push premiums up.
5. Insurers are tightly restricting provider networks to hold down costs in the context of these other changes. This is probably a good strategy substantively, as individuals overrate the medical importance of being able to go to their most preferred doctor or hospital, and being willing to exclude providers allows insurers to better control reimbursement rates. But many participants will reasonably feel that a plan with the same deductible and same co-payments is "worse" than before if it means having to change providers.

The problem with the pie chart I debunked on Friday is that, roughly, it accounts for effects (1) and (4) but not (2) (3) or (5). Similarly, ACA defenders have tended to focus on effects (1) and (4) while eliding the key story from (2) and (3): the ACA creates a new transfer from the healthy to the sick, which makes the healthy worse off.

And we can't say that only 3% of the population are "losers" because we don't know the exact magnitude of effects (2) and (3), and because the importance of effect (5) is basically subjective.

So I can't answer the question you really want an answer to: "how many winners and how many losers does Obamacare create?" Part of the reason I can't answer that question is we don't have a good grip on the average terms of existing plans in the individual market. I can't tell you how many individual-market plan subscribers will have a lower deductible or a lower premium than they used to.

The Kaiser Family Foundation produces a detailed annual report on the group insurance market by surveying thousands of employers about the coverage they provide. Getting a similarly detailed census of individual-market plans would be "almost impossible," according to the foundation's Larry Levitt.

The best I can do is say the ACA will create "several million losers." They're a small slice of the population: in good health, relatively young, with moderate to high incomes, and not receiving health insurance through work. But they're real and their losses are real.

ACA supporters need to argue not that these people don't exist or that their circumstances only changed because of greedy insurance companies; they need to argue that their losses are more than offset by the gains of the sick and uninsured who will get better and more affordable coverage under the law.