The Health-Care Trilemma: How Obamacare is changing insurance premiums

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By Ezra Klein, Published: October 29 at 2:28 pmE-mail the writer

The White House’s biggest frustration right now is that Obamacare’s technical failures are obscuring its great success: Premiums are much lower than the Congressional Budget Office estimated when the law first passed.

In a new report for the liberal Center for American Progress, Topher Spiro and Jonathan Gruber quantify exactly how much lower. Spiro and Gruber find that the average individual premium in the Affordable Care Act’s insurance marketplaces was projected to be $4,700 in 2014. In fact, it’s more like $3,936 — $764, or 16 percent, lower than expected.

That’s a big deal in terms of cheaper premiums, but it’s also a big deal in terms of the budget: If the savings hold, the Affordable Care Act will cost $190 billion less than the CBO estimated over the next decade.

At the same time, people who are currently buying insurance in the individual market are moving to the Obamacare’s insurance exchanges and many are reporting that they’re seeing significantly higher premiums for very similar plans.

This almost seems like a paradox: How can premiums in Obamacare both be lower than expected and, for some people, higher than they were before?

In any conversation like this, a disclaimer is necessary. When people talk about “premiums under Obamacare,” they’re not talking about premiums for people who get insurance through their employers, or through Medicaid, or through Medicare. They’re talking about the so-called “individual market,” which serves about 5 percent of the country now, and which, if Obamacare succeeds, will serve about 10 percent of the population. So we’re talking about insurance premiums for a small minority of the population. But it’s still millions of people.

The conversation over these premiums has been confused to the point of being outright misleading. It’s become common, for instance, for the Affordable Care Act’s critics to compare prices sticker prices in the individual market to the prices in the exchanges now. Since it was routine before for a quarter of people to be turned away or quoted a higher price after revealing their health history, this isn’t just comparing apples to oranges. It’s comparing apples to oranges that many people couldn’t even buy.

The right way to understand this is to think of premiums as a “trilemma” between comprehensiveness, accessibility, and affordability. Imagine this as a triangle:

premium trilemmaIn the individual market, insurance premiums depend on the balance you strike between these values. A plan could have extremely comprehensive benefits and be extremely cheap so long as it’s not open to people who are sick, or are likely to get sick. That would look like this:

trilemma firstYou could also imagine a plan that was open to all comers and very affordable — so long as it didn’t cover much. That might look like this:

affordable accessiblePrior to the Affordable Care Act, insurance in the individual market kept costs down by turning the away the sick, raising prices on the likely-to-get-sick, and offering, in many cases, pretty stingy benefits. So let’s say it was here:

insurance market nowThe Affordable Care Act makes individual market insurance both more accessible and more comprehensive. The accessibility comes from barring discrimination based on health status and limiting discrimination based on age. The comprehensiveness comes from setting minimum standards about what insurance needs to cover and what kind of limits it can set for out-of-pocket expenses, etc.

aca triangleWhat’s important to understand about this trilemma is that it means, roughly, that every change has winners and losers. Put bluntly, the Affordable Care Act’s changes are raising insurance premiums for some people who did well under the old system and lowering them for many of the people who were locked out or discriminated against.

A good example of the tradeoffs is the case of Dianne Barrette, a 56-year-old Florida woman who’s been featured in the media because her current plan will cost 10 times more under Obamacare. As Erik Wemple discovered, her old plan was health insurance in name only. It didn’t cover inpatient hospital care, it didn’t cover ambulance services, and so forth. Under Obamacare, all plans have to cover those benefits. So Barrette’s old plan was extremely affordable — $56 a month — because it covered basically nothing. Her new plan is much more expensive but also much more generous.

But it’s not all zero sum. The law pumps a trillion dollars of subsidies into the market to help people making less than 400 percent of the poverty line — which is $94,200 for a family of four — afford insurance. So now the actual premiums people are paying exist on a continuum, with some people seeing premiums increases and some people paying literally nothing at all:

subsidies aca triangleThe final factor here is increased transparency and competition among insurers — which should bring down premiums over time. Spiro and Gruber credit competition for Obamacare’s lower-than-expected premiums. We’ll see if it sticks.

So the bottom line is that Obamacare makes insurance more accessible and more comprehensive, which raises average premiums, but it adds subsidies and competitive markets, which lower premiums. Whether premiums are higher or lower for an individual person depends on their precise situation. But premiums are, in general, lower than was expected when Obamacare passed.

One thing to note about the media coverage around this is that some of the old plans in the individual market are being canceled or moved onto the exchanges at a time when the exchanges aren’t really working. So we’re hearing from people losing something but we’re not hearing much yet from the people who’re gaining insurance, or lower-priced insurance, through the law. That’s another consequence of the web site’s failures, but it’s a temporary one. There will be some losers under Obamacare, but because of the subsidies, many more winners.

Medicaid Expansion Is Set for Ohioans

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COLUMBUS, Ohio — As a Republican chairman of the House Budget Committee in the 1990s, John R. Kasich wielded a ferocious budget ax. On Monday, as Ohio’s governor, Mr. Kasich defied his party’s majorities in the state legislature to push through a multibillion dollar expansion of Medicaid under President Obama’s health care law.

By a 5-2 vote, an obscure committee, the Controlling Board, which normally oversees relatively small adjustments to the state budget, accepted $2.5 billion in extra Medicaid funds from the federal government. The money, recently approved by Medicaid administrators in Washington, will provide coverage for 275,000 Ohioans who have not been eligible for the program, the Kasich administration said.

The vote was an extraordinary — and possibly illegal, critics in Mr. Kasich’s own party said — end run by the governor around the General Assembly. Mr. Kasich, who initially declared himself an opponent of the Affordable Care Act and who has declined to set up a state online health insurance marketplace, has argued all year that his sense of Christian compassion, not to mention cool economic practicality, favored extending Medicaid to poor adults and those with disabilities who do not currently qualify.

But Republican majorities in both houses of the General Assembly blocked expansion. Opponents expressed disbelief that Washington would keep its promises under the health care law to pay almost all of the costs of expanding Medicaid, the joint federal-state health insurance program for the poor, and worried that Ohio taxpayers would have to pay.

A budget sent to the governor by the General Assembly forbade Medicaid expansion without lawmakers’ approval. Mr. Kasich vetoed that item. At least three bills to expand Medicaid have failed.

Mr. Kasich, who has championed job creation as he prepares for a re-election campaign next year in his swing state, has argued that expanding Medicaid eligibility will be an economic booster shot, because companies will be lured to Ohio by a healthier work force. Expansion is supported by state hospitals, the County Commissioners Association of Ohio and the Ohio Chamber of Commerce.

Under the Affordable Care Act, low-income workers are to receive federal subsidies to buy insurance starting in 2014. But there is a “coverage gap” for some who earn less than the poverty level but do not currently qualify for Medicaid. The federal law allows states to expand Medicaid eligibility to people with incomes of up to 138 percent of the federal poverty level, about $15,860 for an individual. The 2012 Supreme Court decision that upheld the law also allowed states to opt out of Medicaid expansion.

With Monday’s vote, Ohio became the 25th state plus the District of Columbia to expand Medicaid, according to the Kaiser Family Foundation. Nearly a dozen Republican governors have moved to do so, despite the efforts of Congressional Republicans to “defund” the health care law. Gov. Rick Snyder of Michigan, a Republican, waged a long and finally successful fight to expand Medicaid. In Pennsylvania, Gov. Tom Corbett reversed himself and recently endorsed a Medicaid expansion plan in defiance of the State House.

Mr. Kasich, who sought the Republican presidential nomination in 2000 and is thought by some analysts to still harbor ambitions in that direction, proposed expanding Medicaid in his budget address in February. He was represented at Monday’s hearing by Greg Moody, of the Governor’s Office of Health Transformation.

The office’s Web site, makes the administration’s case for Medicaid expansion. “No matter what Ohio decides on Medicaid, health insurance premiums are going up as a result of Obamacare,” it said. “It would make a bad situation far worse if Ohio does not extend Medicaid coverage and reclaim its share of federal taxes to support jobs here in Ohio — jobs that will be created in other states with our money if Ohio does not extend coverage.”

The seven-member controlling board includes the state budget director and six senior members of the Legislature appointed by both parties. As of this weekend, the outcome of the vote seemed uncertain. But on Monday morning, House Speaker William G. Batchelder replaced two members of his party who opposed Medicaid expansion. One of the new members voted for the expansion, the other against.

Mr. Batchelder was one of 39 House Republicans who protested last week that the governor’s decision to take the matter to the Controlling Board violated state law. Speculation around the Ohio Statehouse was that Republican leaders wanted to support the governor but did not want to submit to a roll-call vote exposing their troops to reprisals by Tea Party groups staunchly opposed to the federal health care law.

Immediately after the vote, the conservative 1851 Center for Constitutional Law announced it would sue over the decision to go through the Controlling Board. Maurice Thompson, director of the center, called it a vote “of a small oligarchy” of legislators, “some of whom were switched out at the last minute for politically expedient reasons.”

Mr. Batchelder said in a statement that he replaced two members because both men were candidates to succeed him, and he did not want their competition to influence the decision.

Mr. Kasich said the vote built on efforts by his administration to improve Medicaid. His administration says it has lowered the program’s rate of increase in costs to 3.3 percent annually from almost 9 percent a year before he took office.

“Together with the General Assembly we’ve improved both the quality of care from Medicaid and its value for taxpayers,” Mr. Kasich said in a statement. “Today’s action takes another positive step in this mutual effort.”

This article has been revised to reflect the following correction:

Correction: October 23, 2013

An earlier version of this article misstated the name of the center that announced it would sue over  the Ohio legislature’s acceptance of $2.5 billion in extra Medicaid funds. It is the 1851 Center for Constitutional Law, not the Buckeye Institute.