Despite assurances, subsidies won’t save many from big health insurance rate increases

Trudy Lieberman is a veteran health care journalist and regular blogger for HealthNewsReview.org. She tweets as @Trudy_Lieberman.


Affordable Care Act money

[Editor’s note: There is is addendum at the bottom of the post regarding the impact of rate increases on individuals who are eligible for subsidies and stay in the same plan from year to year.]

Recently a web piece from Governing Magazine, which bills itself as the “leading media platform that covers policy, politics, and management for state and local government leaders” and “the most credible and authoritative voice in its field,” presented a clear reminder that those who write health policy stories can commit the same sins as journos reporting on medical studies and gee-whiz technologies. Too often medical stories emphasize the benefits and omit the harms of those new interventions. So do health policy pieces that stress the benefits of some proposed, rule, regulation, or law to one group without explaining the downsides that are almost always there.

Coverage that minimizes monopoly power

The story in question “UnitedHealthcare’s Exit Leaves Monopolies in Many Places” is an example of such omission. It summarized the exit of the giant carrier from the Obamacare insurance marketplace, leaving a void in many states and an opportunity for monopoly practices in areas that will be served by a single insurer. That means, of course, the carrier still in business can dictate premiums without competitive pushback. But the overall message of this story was “Don’t worry folks,” as it noted that although “less competition means higher prices for consumers,” that wasn’t necessarily true in the case of UnitedHealthcare’s exit.

One reason, it said: “86 percent of the people who use the marketplaces get health insurance subsidies” to buy coverage, a point repeated by policy shops and advocates who want to downplay the effects of possible rate increases, whether they pop up in the context of insurance market concentration or of warnings from regulators that rate hikes are in the offing. The news media has been too eager to pass on that message without giving a more complete story. It’s like presenting the relative risk of some new medical intervention without also giving the absolute risk.

Governing reported that even if people in Kansas and Oklahoma—states where United is pulling out—are left with one carrier, “it’s unlikely that consumers will feel too much of a pinch. If premiums increase, so do their subsidies.”

Here’s where the story went wrong

Some people do get subsidies, and subsidies do go up, but they’re not created equal. Subsidies diminish in value the more money a family has. A family of four with an annual income of $24,300, or 100 percent of the poverty level, receives a larger subsidy than a family with an income of 300 percent of poverty, which is $72,900. A family with the lower income living in Topeka, Kansas, for example, would get a subsidy of $610 a month to buy the second lowest-cost silver plan available to them, leaving them to pay only $41 a month. (The policy costs $7817 a year.) The higher-income family would get only $66. So they would have to pay $586 of the monthly premium on their own. Higher premiums matter a lot to those receiving smaller subsidies and could potentially force some of them to drop their coverage.

People not eligible for any subsidy will also feel the pinch. Subsidies phase out for families with incomes at 400 percent of poverty, or $97,200 for a family of four, and there are no subsidies for those who buy insurance in the individual market outside the exchanges. For 2017 the Congressional Budget Office estimates that three million Americans will get insurance from the exchanges with no subsidies and nine million will buy individual market policies outside the exchanges, exposing 12 million people to rate hikes in the so-called individual market.

Ignoring impact on half of individual market buyers

That’s the same number buying subsidized policies, but Governing didn’t discuss them. Most news outlets didn’t either, overlooking the effects of high premiums on half the buyers in the individual market. The Hill, in a short piece pegged to warnings of large rate increases this fall and an upbeat report from the Obama administration, told readers “while some insurers did spike premiums by double-digits last year, consumers can often switch into a different plan or get help from a tax credit so they don’t necessarily have to pay that increase.” The Fiscal Times reported that “Federal officials stress that the average rate doesn’t tell the whole story, and that in many cases after consumers shop around for the best price and government subsidies are applied, the actual premium increase is lower.” That’s true, but then federal officials weren’t giving the paper the whole story either. No mention of the 12 million policyholders not eligible for subsidies!

Don’t forget copays, deductibles, and premiums

The AP seems to have recalibrated its coverage after initially leaving the same hole. At first AP cited administration officials who said “talk of premium increases is premature and overblown” and rate requests will be lowered in some states. “Most significantly,” the AP added, “the law’s subsidies are designed to shield consumers from rising costs.  More than 8 out of 10 customers receive tax credits to help pay their premiums, and that assistance will increase as premiums rise.” A revised story sent a little later the same day offered readers a more complete picture.

More than 12 million people nationwide get coverage through the health law’s markets, which offer subsidized private insurance.  But the increases could also affect several million who purchase individual policies outside the government system.

While I’m arguing that health policy stories about rates should be more complete, I will add that any rate story shouldn’t just cover increases or decreases for next year’s rates. Rates are a terrible proxy for the total cost of coverage someone will pay, but are the easiest to compare—and misleading. It’s the combination of deductibles, copays, coinsurance and the premium that determine what a family will pay. Low premiums almost always mean higher out-of-pocket costs. News outlets that leave out those elements are as guilty of the sins of omission as the media organizations that have forgotten the 12 million people ineligible for subsidies.

Editor’s Addendum 5/26/16

We’ve received comments to the effect that premium increases on plans in the Obamacare insurance marketplace do not affect individuals who maintain the same plan — the subsidy will increase to make sure that the cost of the plan does not go up overall.  Trudy Lieberman’s response follows:

It’s true that the premium will not change from year to year for individuals who choose the second lowest cost silver plan available in their area if they qualify for a subsidy and their incomes don’t change as a percentage of the federal poverty level. However, the plan that is the second lowest cost silver plan has typically changed every year, which means those people would have to change their plan each year to whatever the new second lowest cost silver plan is in order to retain the same premium.

For many the second lowest cost silver plan is not always as attractive as other silver plans or other metal tier choices. Rate increases do matter, particularly if a person is going to choose something other than the second lowest silver plan. To avoid a premium rate change when a new second lowest cost silver plan is introduced, the person would need to change to the new second lowest cost plan, which could mean lower or different benefits, possibly more managed care requirements and/or a different provider network often with less choice. If a person chooses a plan other than the second lowest cost silver plan, he or she needs to consider how their premium rates will increase since their subsidy is determined according to the difference between the premium rates of the second lowest cost silver plan and their income-based payment obligation, not on the premium rate of the plan they choose.

Editor’s Addendum 6/16/16

Since this piece was posted, several stories have looked more critically at the burden consumers will bear due to Obamacare rate hikes:

NY Times: Yes, Obamacare premiums are going up

NY Times: Why do health costs keep rising? These people know

 

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Comments (4)

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Jason Stevenson

May 17, 2016 at 5:37 pm

Good post. However, I would to point out that the premium subsidies are not just tied to income levels. They are tied to the cost of the insurance premium as a percentage of income. For instance, a family earning 240% of the federal poverty level (FPL) receives a subsidy so that their premium cost doe not exceed 7.7% of their income. So your example is correct that a family earning 100% of the federal poverty level (FPL) would receive a bigger subsidy than a family earning 300% FPL. However, if the cost of insurance premiums goes up overall, the subsidies will go up to ensure that a family earning 240% FPL will continue to pay only 7.7% of their income for premiums. Here’s a link to a chart that indicates the capped percentages that determine the subsidy amount for each FPL percentage: http://obamacarefacts.com/wp-content/uploads/2015/01/perentage-of-asssitance-federal-poverty-amounts.jpg

David M Dinn

May 23, 2016 at 4:32 am

And no mention is made that higher subsidies means higher costs to the taxpayers.

Steven Miles

May 23, 2016 at 8:11 am

First, UnitedHealthCare, unlike Blue Cross or Kaiser Permanente, is structured as a for profit entity. The Affordable Care Act taxes such entities thereby making the margin slimmer.
Second, the threats of higher premiums occurs in the spring after open enrollment. These dire predictions wane as the competition for policyholders ramps up in the fall.
The Commonwealth Fund Health Insurance survey shows declines in the portion of adults having problems paying for care or delaying care because of costs. CDC shows the same. The Dept of Economic Analysis has found that ACA is causing salutary effects on health care inflation and is causing a sharp downward bend in the trend of rising premium prices. The benefits of the ACA on the consumers sense of medical debt and on premiums and on health care inflation is not merely a matter of anecdotes. It rests on very large data.

Laurence Alter

May 24, 2016 at 1:51 pm

“Journos” ?
In any paragraph, one can read unreadable words from the news media.
Laurence Alter