How has Obamacare affected our health insurance? Especially for those individuals who were commonly rejected because of prior health conditions? Now everyone is eligible for health insurance, so how does that affect the big picture?
MARCH 31, 2016
It should be no surprise to anyone, then, that once the Affordable Care Act required insurers to offer insurance to sick people, a lot more sick people signed up.
That is the basic conclusion of a new report on health insurance customers from the Blue Cross and Blue Shield Association analyzing health insurance for 4.7 million Americans in 27 states and the District of Columbia. The report, which shows that new customers are sicker and costlier than people in the old individual insurance market, made a big splash Wednesday, because it implied that the Obamacare markets are more troubled than many had expected.
The problem with the report, however, is that it doesn’t really tell us how Obamacare has affected the individual insurance market. It doesn’t say how expensive it was to pay the medical bills for the whole group of people who bought their own health insurance.
It also doesn’t say whether those people are more expensive and more sick than the association’s members had expected when it devised its plans and chose its premium prices.
The health law requires that companies who sell individual insurance plans in a state need to mix together all of their customers into one big pool, so the premiums for the group cover the costs of caring for all the people. The goal is to make sure that insurers aren’t charging really high prices to groups of people who are likely to be sicker and more costly, while charging low prices to groups it knows will be healthy.
Blue Cross Blue Shield plans are subject to this requirement. But its report treated the longtime, healthier customers and the newer, sicker ones as if they were completely separate groups. The real question for the health of the new Obamacare markets is the costs of caring for the two groups added together.
I asked the association if it could provide those numbers, and Eric Lail, a spokesman, said it wouldn’t be possible to calculate them in time for this article. Without real numbers, it’s hard to know, but a back-of-the-envelope look at the information Blue Cross Blue Shield did provide suggests that people in the individual market are spending about the same amount on health care as people in the much larger market of policies provided through an employer.
The report shows that the newer customers were more likely than longtime ones to have chronic diseases, to go to the emergency room and to take prescription drugs. All of that makes sense, since the established customers were offered individual insurance only if they had clean bills of health when they signed up. One of the goals of the Affordable Care Act was to make health insurance accessible to people with a history of health problems. The report shows that, indeed, once the market was opened to them, they enrolled in the coverage and used it.
The implication of the report, even if it wasn’t shown, is that the individual market has been more costly than the association expected. Blue Cross Blue Shield offers a diverse set of plans, each with its own market size and pricing strategies. Mr. Lail said he couldn’t provide an overall sense of what the insurance providers expected the market to look like, so we don’t know whether the companies, on average, guessed right and charged premiums that covered their costs — or guessed wrong and lost money on the business.
Several competitors made similar mistakes. Across the country, 12 start-up co-op plans have gone under, after charging too little for their plans to cover their costs. And UnitedHealth Group, a large for-profit health insurer with a small footprint in the exchange business, has hinted it may leave the new marketplaces after sustaining losses on last year’s plans.
“Probably a lot of other insurers are having a similar experience in this market,” Mr. Lail said. “Perhaps we’re going to see that everyone’s prices are going to go up in this market.”
Perhaps. Given the public signals from Blue Cross Blue Shield, United and other competitors, it seems reasonable to expect that a lot of insurance providers will try to raise their prices substantially next year. If they succeed, the change will make Obamacare more expensive for the federal government, which pays a portion of most people’s premiums, and for the small percentage of Americans who pay full price for their insurance.
People paying full freight may think twice about renewing their plans if prices rise substantially, so higher prices could put insurance out of reach. But a large majority of people who buy their own insurance now do so on a sliding subsidy scale established by the health law. For them, the subsidy formulas mean their share of the bill won’t necessarily increase, even if all the prices in their market rise.
Because of all those subsidized customers, future premium increases aren’t necessarily signs of trouble for the Obamacare marketplaces. In most markets outside health care, there is jostling by competitors to pick the right price and get the most customers, and many start-ups fail.
Obamacare set up a brand-new market, and it’s not necessarily surprising that some companies made some errors in pricing their products. (Insurance premiums in 2014 were nearly 15 percent lower than the Congressional Budget Office had expected, which means at least some insurance experts basically predicted this problem.) If a lot of health plans charged too little for insurance in the early years, they can increase their prices in the future.
“There are plenty of signs the market will continue to stabilize,” said Larry Levitt, a senior vice president at the Kaiser Family Foundation, who studies health insurance markets. He described the new report’s findings as unremarkable, and the coming price increases as a “market correction.”
Correction: March 31, 2016
An earlier version of this article misstated the number of states that an analysis drew upon for a new report on health insurance customers. The number is 27 states and the District of Columbia, not 50 states.