Cost of Cheapest Obamacare Plans Is Soaring

From Megan McArdle. Excerpts:

"Last week, the Centers for Medicare and Medicaid Services released the 2016 premium data for the “benchmark” plans in the states using federal exchanges. Those are the second-lowest-cost Silver plans in each area, a benchmark chosen by health-care experts"

"This data, which showed premiums rising an average of 7.5 percent, is useful. But it is limited. We’d like to think that this tells us “how much premiums went up,” but it’s not that simple.

First of all, while the subsidies are pegged to the benchmark plan, not everyone buys that plan. Some people buy the cheapest Silver plan. Some people buy a more expensive one. Some people buy an even cheaper Bronze plan, and some people spring for Gold or Platinum coverage. Knowing how the price of the benchmark has changed tells us a great deal about how the subsidies will be calculated in 2016, but not nearly as much as we’d like to know about what people are experiencing in the marketplace.

Moreover, the change in the benchmark rate doesn’t even tell us about the cost of any particular plan. Last year’s second-cheapest policy could be this year’s most expensive, if the insurer decides that it got the pricing wrong, while some other insurer slides into the benchmark spot.

Does that matter, you may ask? This tells us what price people can buy insurance at.

But insurance is not an undifferentiated good, like pork bellies or concentrated frozen orange juice. People don’t want to “be insured” so much as they want to “get health care” -- from providers they like, with the drugs and services they want in the benefit list. If the same package you got last year cost more, you probably aren’t comforted to know that a different package you didn’t want is still very affordable."

"subsidies are probably the biggest thing keeping the markets from sliding into the dreaded adverse-selection “death spiral,”"

" the mandate really doesn’t seem to be doing much to get people to buy insurance, at least yet (the penalty is set to go up again this year, and that may get people to pay attention). The subsidies, on the other hand, clearly have a large effect,"

"we still don’t know what rate increases people are facing, because we don’t know what individuals had in 2015, or what they’ll buy in 2016."

"the whole bottom of the market is undergoing a fairly massive repricing. In most states, the cost of the cheapest Silver plan, relative to the cheapest one last year, rose even more than the benchmark rate. And in most states, the cost of the cheapest Bronze plan went up by more than the cost of the cheapest Silver plan. (The average increase was 13 percent,"

"the consensus seems to be that the pool is sicker than expected (and that includes unsubsidized folks who are buying insurance off of the exchanges," "It’s also older; the administration was looking for about 40 percent of exchange enrollment to come from folks 18 to 35, and at the end of the last enrollment period, that number was stubbornly stuck around 28 percent."

"people who don’t get a lot of value out of insurance don’t seem to be buying it. As a result, the cost of the cheaper policies -- the ones you’d expect the healthier folks to be buying, since they don’t expect to use it much -- is going to have to go up, because the average cost to cover the people who remain is higher than initially hoped."

"But this year it goes up to a pretty hefty sum -- the higher of $695 per adult and $347.50 per child, or 2.5 percent of your annual income -- and perhaps people will look at the higher fees, sigh, and finally decide that they might as well pay a little bit extra and get some insurance."