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How will Obamacare hit premiums? Let’s break down the numbers.

Welcome to Health Reform Watch, Sarah Kliff’s regular look at how the Affordable Care Act is changing the American health-care system — and being changed by it. You can reach Sarah with questions, comments and suggestions here. Check back every Monday, Wednesday and Friday afternoon for the latest edition — and read all previous columns here.

It may be one of the most hardest, most important questions to answer in health policy right now: What will happen to premiums in 2014, when millions of Americans flood into the insurance markets?

It's a question hugely important to the Affordable Care Act's success. If Americans balk at the price of insurance, they may opt-out of the program, reducing the size of the insurance expansion.

Some argue that premiums will spike. Others think they won't. The Obama administration, for its part, thinks there will be a bit of a mix; some will see their costs rise and others will not.

"Women are going to see some lower costs, some men are going to see some higher costs," Health and Human Services Secretary Kathleen Sebelius told reporters Tuesday. "It's sort of a one to one shift ... some of the older customers may see a slight decline, and some of the younger ones are going to see a slight increase."

We don't, unfortunately, have a health policy crystal ball to gaze into on this issue. We do, however, have the next-best thing: An actuarial analysis of health premiums in the California individual market! Exciting, right?

Consulting firm Milliman on Thursday issued a really in depth report on how Obamacare will likely change the cost of health insurance in the state. It's a great way to break down how the cost of coverage will change next year—and also why it's difficult to make any broad statements about the future of health insurance costs.

Milliman starts by walking through all the factors that will make insurance more expensive in 2014. One has nothing to do with the health-care law at all: The firm expects premiums to rise 9 percent next year, due to rising health-care prices. This increase would be in line with the premium hikes seen in recent years.

"We assumed the average increase in premiums from 2013 to 2014, in the absence of the Affordable Care Act changes, to be 9.0 percent," the report says, noting that individual market premium hikes last year ranged between 7 and 11 percent.

The 9 percent increase would happen regardless of Obamacare, so it's hard to count those as a result of the law. There is, however, one part of the health law that will be expensive: The requirement that insurance companies cover a whole bunch of health benefits. This is known as the "essential health benefits" and it can include some health services that plans previously skimped on. Californians (and the rest of the country, for that matter) will have to pay more to get more coverage, essentially. Milliman estimates this will increase premiums by 22.2 percent for most Californians.

So we have health care costs and quality of coverage going up, which are components that would raise premium rates for everyone. But there's one other change, the influx of new customers, that could either raise or lower your premiums, depending on whether you already have coverage.

For those who already have insurance, the Affordable Care Act is expected to increase premiums by 14 percent. That makes sense when you think about some of the people likely to enter the market: Those who previously found coverage too expensive to buy a health plan, perhaps due to a health condition.

If you're one of those uninsured Californians, by the way, the Affordable Care will actually lower the cost of insurance (compared to life without Obamacare) by 14 percent.

Those are the elements that will increase the cost of health insurance, but it's important to remember that there's another big part of the law meant to reduce premiums. These are the tax subsidies, available to Americans earning less than 400 percent of the poverty line (about $45,000 for an individual). These, Milliman expects, will make insurance 83 percent less expensive for someone earning less than 250 percent of the poverty line.

Here's what all those elements look like in chart-form, for those who already have insurance coverage in California:

And a separate chart showing how the cost of coverage will change for the uninsured:

These figures are the pretty basic ones. They don't take into account what will be different for older or younger Americans, or how different states will face different issues. They are, however, a good guidepost for thinking about why premiums will (or won't) go up in 2014. At least, until we track down a health policy crystal ball.

KLIFF NOTES: Top health policy reads from around the Web.

Obama may be open to combining Medicare Part A and B deductibles. "The president told House Republicans that he was open to combining Medicare’s coverage for hospitals and doctor services. That would create a single deductible that could increase out-of-pocket costs for many future beneficiaries, but also could pay for a cap on their total expenses and reduce the need to buy Medigap supplementary insurance." Jackie Calmes and Robert Pear in the New York Times

The Supreme Court decision on DOMA could effect Medicare eligibility. "The federal Defense of Marriage Act, under review by the high court this week, allows states to ignore gay marriages or unions sanctioned outside their borders, and it excludes legally married gay couples from the same protections offered to heterosexual couples under federal health programs, like Medicare, Medicaid and the Consolidated Omnibus Budget Reconciliation Act. Kyle Cheney in Politico




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Brad Plumer · March 29, 2013

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