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Rate shock: This isn’t what we were promised

Conor Durkin | Sunday, August 25, 2013

“If you like your health care plan, you can keep your health care plan,” President Barack Obama famously promised in the midst of the public debate during the passage of the Affordable Care Act (ACA).
Indeed, he also promised that the only change many would see would be insurance becoming $2,500 dollars cheaper per year for the average family. Yet since the law’s passage, it’s become increasingly clear these statements are simply not true and that despite its name, the ACA will actually deliver “rate shock” that makes insurance far more expensive for many.
According to the Congressional Budget Office, by 2017, 77 million Americans will rely on the individual market for health insurance, where those who don’t receive employer-provided insurance can purchase their own policies by creating state-based exchanges aimed at making the individual market more robust. Over the past few months as states have announced the rates at which individuals can buy different plans, a disturbing trend has emerged: Average rates are far higher than those already in place.
Take California for instance.
 According to research from the Manhattan Institute’s Avik Roy, in 2013, the cheapest plan a 25-year old non-smoker could have bought would have cost around $92 per month. However, as of 2014 under the Affordable Care Act, the cheapest plan available will come in at an average of $184 per month, followed next by a plan costing $204 per month – representing an average increase of 100 to 123 percent. This is true for other ages as well, with a net result that people purchasing insurance in California’s individual insurance market can expect to see their rates go up between 64 and 146 percent next year.
And this isn’t limited to California. In June, the Ohio Department of Insurance announced premiums in their 2014 individual insurance market will be about 88 percent higher than current rates.
So why is this happening? According to Roy, there are two main things pushing insurance premiums higher. The first is the large number of new regulatory requirements Obamacare imposes on insurers, like mandating lower deductibles and forcing insurance to provide all sorts of benefits that people might not want or need. The second is the imposition of community rating within the individual market, creating restrictions on the rates insurers can charge for different groups of people.
Young people, who tend to be in good health and are fairly inexpensive to insure, will be hit hardest by this requirement and will end up paying a lot more in insurance to subsidize cheaper rates for the elderly.
Critics on the left will point out two flaws in this thinking. First, access to government subsidies will result in less out-of-pocket payment, even if premiums are higher. Secondly, that the new market enables people who could not previously buy insurance to now do so (the prohibition on discriminating against those with pre-existing conditions, for instance, results in higher premiums for most people but provides access to those who need care most). Both seem like fair points, but they still have issues.
First, while some will see subsidies result in net lower costs, that won’t be the case for most people. Based upon the subsidies’ structure, that 25-year old Californian can expect to pay more for insurance unless he makes less than roughly $20,000, according to Roy.  The access to care for those with pre-existing conditions is a better point – and indeed, it seems patently unfair to prevent these people from getting the access to care they so desperately need. But here’s the catch: the only way for such people to get care is if the new markets are well-functioning and if young or healthy people have an incentive to purchase insurance. If these people believe insurance rates are high enough that buying insurance is no longer worth it, then the market is left with an adverse selection problem that results in astronomically higher rates for sick people needing to buy care. This isn’t about what’s fair, it’s about what’s needed to make the market work, ensuring that insurance is a good deal for the young and healthy as well.
Simply put, this isn’t what we were promised by an act with affordable in its name. While I have never felt going back to the pre-ACA status quo on health care is a good idea, moving forward, we must work to ensure insurance markets are able to provide plans that make sense for both the vast majority of healthy people and those with pre-existing conditions who desperately need care. Reforming the ACA to reduce rate shock and create freer, better working insurance markets can and should be done. Without such reforms, it’ll be young people like you and me who end up bearing the greatest cost.

Conor Durkin is a senior studying economics and political science. He can be contacted at cdurkin@nd.edu
The views expressed in this column are those of the author and not necessarily those of The Observer.