Imagine you went to Best Buy and found a great deal on a plasma television set. I want to be clear here: You didn’t find a great television set. This television set is actually a bit crummy. The picture is fuzzy. Consumer Reports says it breaks down a lot and it’s expensive to fix. But it’s really cheap. The price tag reads $109.
When you take it to the counter, the saleswoman tells you that the set will actually cost you $199. And count yourself lucky, she confides in a conspiratorial whisper. There are customers whom Best Buy won’t sell it to at any price. You ask her which customers those are. The ones who need the TV most, she replies.
So here’s the question: Does that television really cost $109?
Best Buy, of course, would never do this to you. If they say you can buy a television set for $109, you can buy it for $109. Plus, they’re handsome, and their customer service is great, and I hope they advertise in The Washington Post forevermore, amen.
But this is actually how the individual health-insurance market works. And understanding why is crucial to understanding a lot of what you’re going to read about health reform in the next year.
Last week, California released early information on the rates insurers intend to charge on the new insurance marketplaces -- known as “exchanges” -- that the state is setting up under Obamacare. They were far lower than anyone expected. Where analysts had anticipated average premiums of $400 to $500, insurers were actually charging $200 to $300. “This is a home run for consumers in every region of California,” crowed Peter Lee, director of the state’s exchanges.
The Affordable Care Act’s critics saw it differently. Avik Roy, a conservative health writer at Forbes, said Lee was being “misleading” and that “Obamacare, in fact, will increase individual-market premiums in California by as much as 146 percent.” Obamacare, he said, would trigger “rate shock,” the jolt people feel when they see higher rates. That doesn’t sound like a home run at all.
Who’s right? In typical columnist fashion, I’m not going to tell you just yet. But stick with me, and you’ll be able to parse the next year of confused and confusing Obamacare arguments with ease.
Here’s the first thing to know: We’re talking about a small fraction of the American health-care system. This isn’t about people on Medicare or Medicaid or employer-based insurance. It’s about people joining Obamacare’s insurance exchanges. That’s people who buy insurance on their own now, as well as some of the uninsured. In 2014, 7 million people, or 2.5 percent of the population, is expected to buy insurance through the exchanges. By 2023, that will rise to 24 million people, or 8 percent.
So we’re talking about a small portion of the market. Worse, we’re talking about that small portion of the market all wrong.
Roy got his 146 percent by heading to eHealthInsurance.com, running a search for insurance plans in California and comparing the cost of the cheapest plans to the cost of the plans being offered in the exchanges. That's not just comparing apples to oranges. It's comparing apples to oranges that the fruit guy may not even let you buy.
I ran the same search Roy did. I looked for insurance in Irvine, Calif. -- my home town. The average monthly premiums of the five cheapest plans is $114. So I took the middle plan, HealthNet’s IFP PPO Value 4500. It’s got a $4,500 deductible, a $2,500 deductible for brand-name medications, huge co-pays and a little “bestseller” icon next to it. And it’s only $109 a month -- if they’ll sell it to you for that price.
That’s the catch, and it’s a big one. Click to buy the plan and eventually you’ll have to answer pages and pages of questions about your health history. Ever had cancer? How about an ulcer? How about a headache? Do you feel sad when it rains? When it doesn’t rain? Is there a history of cardiovascular disease in your family? Have you ever known anyone who had the flu? The actual cost of the plan will depend on how you answer those questions.
According to HealthCare.gov, 14 percent of people who try to buy that plan are turned away outright. Another 12 percent are told they’ll have to pay more than $109. So a quarter of the people who try to buy this insurance product for $109 a month are told they can’t. Those are the people who need insurance most -- they are sick, or were sick, or are likely to get sick. So, again, is $109 really the price of this plan?
Comparing the pre-underwriting price of this plan to those in Obamacare’s exchanges is ridiculous. The plans in Obamacare’s exchanges have to include those people. They can’t turn anyone away or jack up rates because of a history of arthritis or heart disease.
They also have to offer insurance that meets a certain minimum standard. Under Obamacare, for instance, the out-of-pocket limit for someone making 100 to 200 percent of the poverty line is $1,983. Under the Value 4500, you could spend up to $9,500 before the out-of-pocket limit kicked in. Obamacare also has subsidies for people making up to four times the poverty line. The poor pay next to nothing. The rich pay full freight.
“We as a society have never really said here’s what reasonable insurance is,” says Larry Levitt of the Kaiser Family Foundation. “It’s just been anything goes. For the first time they’re setting a minimum about what reasonable insurance should be.” They’re also setting a minimum about who should be able to get it, and at what cost. Now it really will work like Best Buy, where the price on the tag is the price everyone actually pays.
Some people will find the new rules make insurance more expensive. That’s in part because their health insurance was made cheap by turning away sick people. The new rules also won’t allow for as much discrimination based on age or gender. The flip side of that, of course, is that many will suddenly find their health insurance is much cheaper, or they will find that, for the first time, they’re not turned away when they try to buy health insurance.
That's why the law is expected to insure almost 25 million people in the first decade: It makes health insurance affordable and accessible to millions who couldn't get it before. To judge it from a baseline that leaves them out -- a baseline that asks only what the wealthy and healthy will pay and ignores the benefits to the poor, the sick, the old, and women -- well, that is a bit shocking.