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Obamacare and the myth of rate shock

insurance
REUTERS/Brian Snyder
Those ginning up fear about rate shocks only refer to the monthly premium, which is a pretty shoddy cost-measurement tool. Monthly premiums aren’t the limit of what you’ll be spending on any plan.

Arguments about health-insurance rate shocks when the Affordable Care Act (Obamacare) kicks in willfully disregard key facts behind the policy.

Claims regarding rate shock are based on the premise that the cheap plans on the market today are no longer going to be available, and the new plans will be incredibly expensive. To get there, many conservatives go to eHealthInsurance.com, a private insurance marketplace, and compare the cost of the cheapest rates on the private market to the cost of plans on health-insurance exchanges.

As Ezra Klein states, however, comparing eHealthInsurance.com rates with Obamacare rates is “not just comparing apples to oranges. It’s comparing apples to oranges that the fruit guy may not even let you buy.”

Many of those who are uninsured right now would not be eligible for the $60 per month plans available on the market. That’s because these prices assume you have no risk factors, and are a young, healthy individual. After filling out the health forms, most uninsured folks would find themselves on the hook for considerably more than $60/month, for the same coverage.

Think of it as one of those car commercials with a rock-bottom interest rate. In reality, most people don’t actually have the credit score to qualify for that rate. Exchange plans will show the price you'll pay up front, so the price you see is the price you pay. Furthermore, the new plans are required to offer more than just the bare-bones coverage, which contributes to a higher average cost. But, in the long-term, patients’ out-of-pocket costs will be less with the new plans.

Thinking beyond the premium

Those ginning up fear about rate shocks only refer to the monthly premium, which is a pretty shoddy cost-measurement tool. Monthly premiums aren’t the limit of what you’ll be spending on any plan. Think about the current system’s co-pays, deductibles, and procedures insurance doesn’t cover.

Using the median household income ($28,693) for Minnesotans younger than 25, I went to eHealthInsurance.com and found myself a plan based on my age, location (a 23-year-old St. Paul resident) and a couple of basic health questions. Medica’s Solo plan with a $12,600 annual deductible was one of the cheapest, with a monthly premium of $69.39. This comes with a total out-of-pocket expense limit of $13,600 in a calendar year. (Excluding the monthly premium, that’s the most you’d have to fork over for one year.)

The most stripped down coverage level for Obamacare plans is the Bronze coverage, which is expected to have a total out-of-pocket expense limit of $6,400.

Since Minnesota's exchange is still in development, it's not possible to make an exact comparison. However, one state that can possibly act as a guide is California, which has the first official Obamacare plans on an exchange. It shows I would pay a $137 monthly premium for my plan, and would have that $6,400 out-of-pocket limit. What it boils down to is that I would pay an extra $67/month to reduce my total liability by $7,200/year.

I know what people are thinking, I’m a healthy young person. Why should I pay that much extra to lower my out-of-pocket, when I’ll likely never need it?

Consider the emergency

Consider this: Medica estimates the average price of an appendectomy in St. Paul (a procedure two of my closest friends had at 22), to be between $6,881 and $10,500. Even on the lower end, say $8,000, you're already well above the out-of-pocket threshold for the Obamacare plan, but still well below the cheaper plan.

Add in a second emergency, and you’re looking at a pretty painful year on the pocketbook under the cheap plan.

All right, maybe you can stay healthy over a few years, but let’s consider what could happen over a decade. Reaching that $13,600 out-of-pocket threshold while on the Bronze plan from Obamacare instead of the Medica plan would pay for 107 months of the additional $67 premium, or nearly 9 years’ worth. 

Finally, conservative claims about rate shock tend to ignore the premium subsidies included in the Affordable Care Act. Individuals and families making up to 400% of the federal poverty line – $45,960 for an individual and $94,200 for a family of four – are eligible for tax subsidies on their health-care premiums. Considering that the vast majority of uninsured Minnesotans live under the 400% of poverty level, nearly all of them would be eligible for some measure of subsidy.

In the recently released California plans, a 21-year old making 150% of the federal poverty line, or $17,235/year, or less would pay nothing for the most affordable Bronze-level health care. That’s a $0/month premium. And while that might be a shocking rate, it’s sure not going to be bankrupting anyone.

Argument designed to scare

Rate shock is a myth, designed only to scare the public into believing that the most meaningful health-care reform in recent history will bankrupt people everywhere. What I’ve written above is only the immediate dispelling of the fear mongering. A number of factors will better control costs across the system over time, as the total cost of health care decreases due to everyone having insurance.

We need facts, not rhetoric, to prevail in order to make the transition to the Affordable Care Act as smooth as possible. That starts with not allowing the myth of rate shock to continue. People are going to save money on health care with minimum-standard plans. We’ll all be richer, and healthier, for it.

Kevin George, a graduate of St. Olaf College with a degree in political science and media studies, is a policy associate at Minnesota 2020, a progressive think tank based in St. Paul. This commentary originally appeared on its website.

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Comments (11)

Thank you

for being a voice of reason which needs to be heard above all the noise obscuring this issue.

Try the California calculation for an older person

When you look at the health costs for a young person, the numbers are small enough to be manageable under most circumstances. But for a 60 year old California married couple who makes $75,000/year, the monthly premium is $1250 with a $12,700 maximum out of pocket expense for the Silver plan. That's just under $28,000/year and most couples this age would spend this much. This is more or less what the couple would pay with or without Obamacare, but at least with Obamacare, this older couple can get insurance regardless of the preexisting conditions they certainly have.

The problem is that no one is addressing the overall high cost of healthcare. Obamacare guarantees accessibility, especially for the poor, but not so much so for those of higher incomes.

The Republicans have completely failed to be helpful in solving any of these problems and the Democrats marginal at best.

Obamacare does not guarantee accessibility

It guarantees coverage. Good luck finding a doc.

It's worth pointing out that

It's worth pointing out that a single-payer system avoids this whole conundrum of "will people choose to buy insurance or not". As most have proposed enacting, it would be financed by a tax on individuals and businesses, for which we already have a collection/enforcement mechanism. Since there would not be such a large problem of non-payers, those already paying (through their premiums, and through the money that their employer pays for insurance, which otherwise could be used for salaries) would pay less.

As an example, the California couple that Mr Callahan mentioned (75k in income, 1,250 a month or 15k a year) is paying 20% of income for healthcare, just in premiums. In contrast, the proposal put forth by the largest advocacy group for single payer (Physicians for a National Health Plan; PNHP.org; full disclosure: I'm a member) proposes to fund a comprehensive national health plan with a 2% tax on individuals and a 7% payroll tax on employers.

2% vs 20%; plus no more linkage of insurance to employment, meaning you are free to pursue the intriguing job you were offered without having to factor in whether insurance is offered, how good the plans are, etc.

Thanks to the author for debunking the rate shock myth, but lets also recognize that the Affordable Care Act, which certainly improves things for many people, is unlikely to dramatically lower costs, and will not provide universal coverage. Single-payer can probably do both.

Choice

...but I don't want to participate. Do I have a choice?

Sure, you have a choice. You

Sure, you have a choice. You can go to any doctor, any hospital, any clinic, and choose based on quality of care and what they have to offer-- instead of by which providers are in your network, which plans they accept, etc. Instead of having the competition being in back rooms where insurers negotiate with providers and come up with lists of where you can go and who you can see, competition and choice are left to the providers and the consumers-- the way most free market people would seem to want it. Lots of choices.

Let Us Not Forget

That there is a very well-funded effort on the part of the wealthiest, most dysfunctional members of the rentier class to make sure the public is as scared as possible of the Affordable Care Act, NEVER sign up for it, and start a revolt against the small tax penalties that will be levied on those who refuse to sign up for insurance (and think it's perfectly OK if the rest of us are forced to pay for their emergency care should the need arise),...

an effort which is part of their dysfunctional desire to force American workers to accept a standard of living as low as that of the workers in the lowest, least developed nations of the world.

These generally quite idle (except for financial paper pushing and constant conspiring with their cronies to steal this once-great nation out from under the majority of its citizens) wealthy folks want to place the formerly-middle class citizens of this nation in the position where, if they desire even the most meager survival, they have no choice but to work themselves into an early grave at poverty wages, and, should they fall ill, have no recourse but to "die quickly" (as Rep. Alan Greyson so eloquently put it).

The Affordable Care Act, inadequate though it may be, forms a major barrier against moving the working class of America into this pitiable, desperate, poverty-stricken position.

The Koch bros., et all, have made the pre-ghost Ebenezer Scrooge the hero of their lives, and imagine themselves to have divinely bestowed rights to lives of wealth beyond the dreams of avarice that rival the kings of old. They have absolutely NO clue that here in the twenty-first century, what they will get if they succeed in destroying the middle class is not a resentful, class of diligent workers, but class warfare on a scale that rivals the French Revolution.

When it comes to the A.C.A. let's make sure our friends and neighbors know the truth. Let's challenge those who are repeating lies from the conservative (and, far too often, mainstream) media, and help those who need help to sign up for the care they need and deserve.

Not true

This is simply not true. It's sensational but not true. The philosophical and factual errors are too numerous to recount.

Oh, go ahead!

Pick a few and give it a shot!

Thanks for the info

I didn't realize that the federal government actually had exchanges (and rates) ready to go well before the October deadline. The ACA will definitely be affordable for most if everyone making under $90,000 gets a subsidy since anyone making over $150,000 is rich and will be paying for most of America. But can a system like this last?

Rate Shock Reality

I'm a 60 year, married Minnesotan with private insurance. Since I no longer receive a W-2 and corporate health coverage, I must buy my own insurance. We have a $5,000 deductible policy and pay $14,000 per year. I just learned that our premium will rise between 25% to 40% in October of this year. That's a reality, not speculation. Such an increase on a fixed income is not trivial. The Afforable Health Care Act is not helping to make health care insurance coverage affordable for us.