ObamaCare Raises Health Insurance Premiums, Especially For The Young
By Matthew Herper
The Affordable Care Act has dramatically increased the cost of buying a health insurance plan on the individual market in California, Texas, Florida, New York, Illinois, Georgia, and North Carolina, states that account for more than half of America’s uninsured adults, according to a study by Sector & Sovereign, a sell-side firm that focuses on advising investors what sectors to put their money in.
Worse, the firm argued in a note earlier this week, the increases in cost are most substantial for the young.
According to S&S, the average deductible – the amount of money you spend out of pocket before your health insurance kicks in– for plans purchased by a 21-year old man in 2013 was $3,649, bought at an average monthly premium of $144. To purchase a plan with the same deductible now, a 21-year-old would have to pay $261, an 81% increase.
For a 40 year old, the 2013 average deductible was $4,045, and the cost increased 29% to $309. For a 64-year-old man, the cost of a plan with a $3,494 deductible increased 64% to $806.
“If you ignore the subsidies, then apples to apples, as best we can tell, it’s more expensive,” says Richard Evans, the lead analyst on the report. “You’ve got to find some basis for comparison and the best we have is deductible and out-of-pocket maxima. The difference is substantial enough that we’re pretty convinced that health insurance is more expensive is 2014 than in 2013.”
The biggest reason for the increase is that many of the cheap plans that existed previously are no longer legal. The number of plans analyzed in those states decreased from 2,000 in 2013 to 1,200 for 2014. Essentially, Evans says, Obamacare “took the bottom of the market away.”
In fact, according to Evans’ numbers, for 21-year-olds in the most expensive 25% of plans, things actually get better. For a 14% increase in premiums (to $275) they get a 19% decrease in deductible (to $1,537) and a 35% decrease in out-of-pocket maximum, the maximum amount of covered health care costs they could spend (to $4,587).
The problem, he argues, is that this isn’t what makes people buy health insurance. For a 21-year-old male buying a plan, the chances of getting anything from it are low. So he’s more likely to risk going without insurance when you both increase the premium and increase the amount he has to spend out of pocket. And that means fewer young, healthy people buying plans through ObamaCare, which in turn could make the business of selling those plans less appealing for insurers.
This is the fundamental problem of having people buy health insurance. In plans paid for by employers, this is solved simply by making younger employees pay higher costs while older ones pay less. For Medicare, the cost of insuring people who are old is borne by taxpayers. But here, some young people might opt to pay Obamacare’s penalty instead, or to hope they can get away with not having insurance and not paying that penalty.
Evans has some suggestions as to how this could be fixed. One idea would be to allow for higher out-of-pocket maximums in ACA-compliant plans, thereby allowing insurers to lower deductibles, meaning that young people might be enticed into more coverage. Another idea would be to change the way ObamaCare subsidies work, essentially paying more young people to sign up.
Meanwhile, another analyst sees the fixes made so far to Healthcare.gov as limiting the worst-case scenario for insurers. Earlier this week Leerink analyst Ana Gupte wrote that thanks to the fixes so far, he sees a ‘bear case,’ of 3 million people being enrolled, being met, with the possibility that his base case – 5 million people enrolled– might actually happen. But the chances of the Congressional Budge Office’s original projection being hit are “unlikely at this point,” Gupte writes.
This limits the downside to big players that are participating in the ObamaCare exchanges, including Humana HUM +0.68%, Aetna AET +1.03%, and Wellpoint, to a 1% to 2% hit to earnings per share in 2014. Smaller insurers like HealthNet, Molina Healthcare, and Centene could suffer an earnings hit of 6% to 7%, Gupte writes, if enrollment in the exchanges doesn’t improve. Gupte advises investors to purchase Humana, Wellpoint, and Centene shares.