Three Important Caveats On The Obamacare Premium News

September 26, 2013 5:50 a.m.

On Wednesday, the Obama administration was touting its news that health insurance premiums under Obamcare had come in significantly lower than expected. With Ted Cruz still arguing on the Senate floor about how the law would destroy the U.S. health care system, it’s easy to imagine why the White House was gloating.

And the premium data is mostly good news for the administration. Lower-than-expected premiums means coverage should be more affordable and cost the federal government — which is heavily subsidizing much of it — less, versus expectations. But there are a few pieces of the story that the federal data doesn’t fully tell, which savvy health care consumers (and interested political parties) would do well to keep in mind.1. Premiums don’t reflect the full cost of coverage.

Premiums are usually the top line for the cost of insurance, but they aren’t everything. People will also have to pay deductibles and other cost-sharing, like co-payments when they pick up a prescription. Those other costs add up.

For example, according to a Wednesday analysis from Avalere Health, an independent consulting firm, individuals with a silver-level plan from the Obamacare exchanges (which covers 70 percent of costs) will pay an average deductible of $2,250. That’s double the deductible that most people with employer-based coverage pay now, according to Avalere. The deductible goes up for bronze-level plans (which cover 60 percent of costs).

The likely reason for those high deductibles is that insurance companies wanted to make headline-grabbing premium prices as low as possible. So they need to make up the expected costs elsewhere, said Dan Mendelson, Avalere’s CEO and founder and a former Clinton health adviser.

“This is a highly competitive commercial market. They are pushing to get premiums as low as possible,” Mendelson told TPM. “Consumers are going to have to understand this. You can’t assume because you pay the premium, you’re done paying.”

Obamacare does include some protections. For many low-income people, the ACA limits how much they’ll have to spend on health care. Individuals with an income at 200 percent of poverty or below won’t pay more than $2,250 out of their pocket annually. If those people get in a major accident or are diagnosed with a serious illness, Obamacare is still going to help protect them from catastrophic medical costs.

2. Some people are going to pay more for coverage under Obamacare than they would pay now.

Conservatives have been harping this point for months now: Some young, relatively affluent, healthy people are going to pay more for insurance under Obamcare than they would have prior to the law. That’s because insurers need to spread the costs of insuring older and sicker people in the pool.

The conservative Manhattan Institute crunched the federal data released Wednesday and concluded that average premium for a 27-year-old man with an individual policy will nearly double under the ACA compared to pre-Obamacare prices.

There are some caveats. For a 27-year-old man making less than 400 percent of the poverty level, the law’s tax credits will go some of the way — though not always all the way — toward offsetting those costs. In addition, the institute’s analysis doesn’t account for the fact that the health insurance offered through Obamacare is much more comprehensive than the existing plans that it used for comparison. Insurers must cover a wide range of medical services, so the consumer is getting more coverage for the increased cost. Plus, there are the aforementioned limits on how much lower-income people can ultimately be asked to pay out of pocket each year.

Tim Jost, a Washington and Lee University professor and Obamacare advocate, observed in Health Affairs Wednesday that insurance under the ACA will offer “bankruptcy protection” to young people who are paying more for coverage in a way that insurance before the ACA didn’t.

3. Your premium experience will depend a lot on where you live.

For a small subsection of the population — uninsured but with too high of an income to qualify for any federal help buying insurance — their geographical location will be a significant factor in how affordable ACA coverage is for them.

The average silver-level plan premium for a 25-year-old ranges from $342 a month in Wyoming to $161 in Tennessee. For a family of four, the disparity is huge: from $1,237, again in Wyoming, to $584, again in Tennessee. Experts say a variety of factors — from geographical variations in health care costs to the number of insurance carriers selling in the market — contributes to that difference across states.

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