The rates that Ohio reported are proposed rates; the Department of Insurance still has to formally approve them. “A total of 14 companies proposed rates for 214 plans to the Department. Projected costs from the companies for providing coverage for the required [by Obamacare] essential health benefits ranged from $282.51 to $577.40 for individual health insurance plans.”
It’s called “rate shock,” but it’s not shocking to people who understand the economics of health insurance. In August 2011, Milliman, one of the nation’s leading actuarial firms, predicted that Obamacare would increase individual-market premiums in Ohio by 55 to 85 percent. This past March, the Society of Actuaries projected that the law would increase premiums in that market by 81 percent. Like good players on “The Price is Right,” they both came in just under the Dept. of Insurance's figure.
* * *
Follow @Avik on Twitter and Google+, and The Apothecary on Facebook.
Or, sign up to receive a weekly e-mail digest of articles from The Apothecary.
* * *
What are the drivers of the increase? According to Milliman, the two biggest drivers are (1) risk pool composition changes, such as forcing the young to subsidize the old, and the healthy to subsidize the sick; and (2) Obamacare’s required expansion of insurance benefits, particularly its mandated reductions in deductibles and co-pays.
This is a significant concept to understand. Some people have the impression that the main reason that rates are going up under Obamacare is because of the law’s requirement that insurers cover people with pre-existing conditions. But that accounts for only a fraction—around a quarter—of the rate hike. The rest comes from all the other things that Obamacare does, such as forcing people to buy richer insurance benefits; to buy products with all sorts of add-ons they might not need; to pay Obamacare’s premium tax; and to pay a lot more, if they’re young, to subsidize older individuals.
There is an important difference between these analyses and the one I conducted for California last week. Ohio has reported average premiums across the individual market, for everyone; for California, I looked at the lowest-priced individual-market plans for 25- and 40-year-old men, both pre- and post-Obamacare. We’ll need to go through Ohio's individual rate filings, especially after they’ve been approved by the state, to get a more detailed sense of what is going on.
But the bottom line is this: President Obama and then-House Speaker Nancy Pelosi promised that premiums would go down for those who already have insurance. And yes, for those lower-income folks who benefit from the subsidies provided by other taxpayers, the costs they see may go down. But middle-class Ohioans will pay more in taxes to pay for those subsidies, and more in premiums. It will be interesting to see how those Ohioans feel about that.
* * *
UPDATE 1: Dave Dysinger, who runs a growing manufacturing business in Dayton, is worried about being subjected to the employer mandate as premiums in Ohio rise, according to the Dayton Daily News:
Dave Dysinger of the Dayton-based precision machine business, Dysinger Inc., said business is booming, putting pressure on the firm with just under 50 employees to expand its workforce.
But if the company crosses the 50-worker threshold, it would be forced to comply with the provisions of the health care law or pay a fine.
The cost of insurance could skyrocket if Dysinger brings on a fresh new crop of younger workers, but the law would limit how much of that cost he could pass onto his employees in the form of deductibles, co-payments, and coinsurance.
“I am very concerned about what’s going to happen with the cost of health care,” Dysinger said. “But I’m going to save my whining until I actually see what’s going to happen.”
UPDATE 2: For those who are curious about the details of the Society of Actuaries' estimate about pre-ACA insurance costs (which were cited by the Ohio Department of Insurance), the SOA calculated that "average costs in the non-group market" pre-ACA were $223 per month. The SOA estimates that post-ACA, non-group coverage will cost $403 per month, an increase of 81 percent.
According to SOA, that $223 figure reflects a risk pool in which 21.4 percent had a chronic condition. 1.7 percent of non-group individuals who were "high risk" were outside of that pool. If you incorporate them, the average cost goes up to $254; this leads to a premium increase of 59 percent by the SOA estimates. In other words, 22 percent of the absolute increase is due to guaranteed issue, and 59 percent is due to other factors.
There is one issue to nail down with the Ohio Dept. of Insurance's figures. The Society of Actuaries data appears to describe medical costs; the Dept. of Insurance figures appear to describe rates. Rates include administrative costs, medical costs do not. If we assume an administrative cost ratio of 20 percent, the SOA baseline would be closer to $279, which means that the rate shock would be around 51 percent, not 88 percent.
UPDATE 3: According to a spokesman for Lt. Gov. Taylor, the Ohio Dept. of Insurance figures do not include administrative costs, resolving the concern I raised in the last paragraph of Update 2. From the spokesman:
The rates we released last week were index rates pulled from the filings after they were submitted to the Department of Insurance. These index rates only include the projected claims [per member per month] by the carriers for covering the essential health benefits. Administrative costs, risk adjustment, reinsurance, and fees were not included in the index rates we used to form our average that we then compared to the SOA baseline number.
We felt this was the fairest comparison we could make with the information we have at this time.
UPDATE 4: Philip Klein notes that plans on eHealthInsurance.com, with comparable features to those of Obamacare's bronze plans, are far cheaper pre-ACA:
Ohio regulators also announced that, "Projected costs from the companies for providing coverage for the required essential health benefits ranged from $282.51 to $577.40 for individual health insurance plans." That means that the cheapest plan available under Obamacare in Ohio will be $282.51.
But according to a search of eHealthInsurance.com, a 26 year-old living in Cleveland, Ohio, could currently purchase an Anthem SmartSense Plus plan for $89.45 per month. That's less than a third of the cost of the lowest Obamacare rate, as reported by Ohio regulators, and the annual out of pocket expenses for the Anthem plan are $6,000 -- which is less than Obamacare's bronze option.
In fact, under the current system, the same hypothetical 26 year-old could purchase a Medical Mutual plan with a $2,500 annual out of pocket limit, for $188.41 per month -- still significantly cheaper than the least expensive Obamacare option.
UPDATE 4: Our own analysis of Obamacare's impact on insurance premiums nationwide finds that Ohio will actually see decreases in average premiums under the law.
INVESTORS’ NOTE: Publicly-traded insurers who participate in public and private health insurance exchanges include
More on Forbes:
