How to cut through the spin about ObamaCare premiums

Thursday, just five days before the ObamaCare health insurance exchanges “go live,” the Obama administration released an “analysis” of insurance rates that would be available under federally run or facilitated health insurance exchanges.

The administration’s spin has been carefully calibrated to give the appearance of success.

If you read the ASPE methodology closely, however, the administration is declaring victory based on an estimate of an estimate: specifically, what the Congressional Budget Office (in 2012) expected the family insurance premium for the second cheapest silver plan to be in 2016, less two years of inflation (assumed to be 5.5 percent annually) and adjusted for individual coverage (along with other adjustments for the estimated size of the market to take into account reinsurance subsidies).

The administration was also careful to choose income points ($25,000 for a 27 year-old male living alone; $50,000 for a family of four) that would make the premium tax credits look as good as possible.


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    Critics can certainly take issue with the administration’s cherry picking of data – as my colleague Avik Roy does at Forbes’ Apothecary blog. And it must be noted that 52 percent of people who buy insurance in the individual market today won’t be eligible for any subsidies, and will see the cost of their current plans increase sharply.

    But the best way to evaluate the affordability of exchange plans isn’t to compare them to an estimate – it’s to compare them to actual 2013 rates.

    If someone tried to sell you a new car, and said it was a great deal because it was cheaper than it was projected to be, you’d laugh at them. You’d compare the new car’s price to the prices of other cars that were actually being sold.

    For the most part, the media has picked up on this attempted bait-and-switch.

    Bloomberg notes that the new premiums “test [the limits] of affordability,” and that “less than half of people now buying insurance on their own may get” subsidies to offset higher costs.

    The Wall Street Journal is also skeptical. In a graphic comparing current rates and exchange rates in 2014, the Journal notes that “young consumers in many states will be offered rates that are lower than some initial forecasts, but still significantly higher than they may be used to seeing, on health-insurance exchanges run either entirely or in part by the federal government.”

    The Journal looks at 36 major metropolitan areas in states with federal exchanges: in Philadelphia, for the lowest cost Bronze plan for a healthy 27 year-old, 2014 rates will be $195,  compared to $73 this year. Milwaukee ($200 v. $69), Miami ($163 v. $66), and Detroit ($138 v. $55) also see large increases. 

    Over metropolitan areas and states that the Journal examines, the average cost of the cheapest Bronze Plan will be $170 – compared to an average of $66 for the cheapest plan available this year – that’s an average increase of 257 percent.

    The plans available under the exchanges will have richer coverage than cheapest plans currently  offer – requirements for prescription drug coverage, hospitalization, maternity coverage, and addiction treatment, among other things.

    If you’re a healthy 27 year old non-smoking male (or female) you may not want or need to buy these things, but you’ll be required to purchase insurance that covers them.

    The administration’s defenders likely will focus on the kind of coverage offered, rather than its cost. But to return to our earlier example, we don’t require people to drive the latest cars with the latest safety features – it would be ruinously expensive.

    Indeed, people are free to drive 20 or 30 year-old cars that meet minimum safety features. They’re even allowed to drive motorcycles, which have a much higher risk of serious and fatal injuries than automobiles. With a few rare exceptions (like school vaccinations), we don’t, as a society, tell people which financial or health risks they’re allowed to expose themselves to.

    ObamaCare, also known as the Affordable Care Act, was sold as a bill that would control costs. As it turns out, ObamaCare will increase national health care spending by over $600 billion, and accelerate health care inflation, according to estimates recently released by Medicare’s own actuaries.

    Conservatives, however, shouldn’t content themselves with railing against the law. No government shutdown is going to stop the exchanges from launching and the subsidies from flowing. And health care spending will remain the nation’s most pressing fiscal challenge, with or without the law.   

    Conservatives should focus on specific short- and medium-term reforms that can attract bipartisan support.

    - Repeal ObamaCare’s costly taxes on drugs, medical devices, and health insurance.

    - Repeal Medicare’s Independent Payment Advisory Board.

    - Repeal the employer mandate, which will kill jobs for low-income workers. Adjust the subsidies in ways that lower costs to taxpayers (down to 300 percent of the federal poverty level, as in Massachusetts), and level the playing field between employer coverage and exchange coverage (like in the recent proposal from the Republican Study Committee).

    Finally, conservatives have to find ways to build public support for market-oriented reforms by linking them to better jobs, economic growth, and (truly) affordable care. One day you may actually have the votes to implement them.

    ObamaCare will be a dose of bad medicine for the U.S. health care system, as ASPE’s own data show. America will get better, but only if conservatives focus on delivering solutions for the underlying disease – high costs – that ObamaCare virtually ignores.