Are Indy Market Premiums "Higher" or "Lower" under Obamacare?

Over 2 years ago, I posted the following:

Golf Carts vs. Ford Fiestas: No, "healthcare policy" premiums did NOT go up 49% due to the ACA

Yesterday I posted an entry which noted a story published by Avik Roy over at Forbes about an extensive study by the Manhattan Institute which compared the average insurance policy premiums last year vs. the average premiums this year, after the first ACA open enrollment period. Roy's piece breathlessly claims "Obamacare Increased 2014 Individual-Market Premiums By Average Of 49%"

I wrote a response piece which also included the HHS report about ACA subsidies covering an average of 76% of the premium cost for the Federal marketplace, but I didn't really have time to do a full analysis of the Forbes piece. However, I did note 4 major points which lept out at me right off the bat:

1. The "49% increase" referred to unsubsidized rates. Once you include the subsidies, the average cost to the enrollee DROPPED by 64%...although that only applies to policies purchased via the ACA exchanges, of course (the report only covered HC.gov, not the state-run exchanges, though I presume those would see similar numbers)
2. Both reports only covered the premiums, not the total cost of the policies including deductibles, co-pays and other expenses; obviously those are much trickier to deal with
3. I couldn't tell whether the Forbes study included only true healthcare policies or if it also included the so-called "junk" plans or not, which are often nothing more than expensive "discount cards"
4. Average healthcare premium rates were already going up at least 10% per year before the ACA was enacted, meaning that at least 1/5th of the "49% increase" was irrelevant

The larger point I was making is that the "49% hike" claim was absurd because the comparison wasn't even "apples to oranges"...it was more "apples to a thumbtack". The differences between the pre- and post-ACA plans being compared were so vast as to make it almost impossible to compare them at all.

I was reminded of my "Golf Carts/Fiestas" piece this week after reading several articles about the question of just how much individual market policy premiums have increased since the ACA was implemented. First came this study by Loren Adler and Paul Ginsburg over at HealthAffairsBlog, which claimed that "2014 Premiums in ACA Marketplaces were 10-21% Lower Than 2013 Individual Market Premiums":

While many stories of pronounced increases are simply the natural result of a law that works differently in every region and for people of different health statuses, it appears to be conventional wisdom that the ACA increased premiums in the individual, non-group insurance market, if only because it increased the quality and robustness of coverage. Indeed, many of the ACA’s new rules do have the anticipated effect of increasing premiums, such as:

• mandated guaranteed issue regardless of health status;
• restrictions on the ability to charge different premiums based on anything besides age and smoking habits;
• requirements for plans to offer certain benefits deemed “essential;”
• limits on out-of-pocket costs an enrollee can pay for covered services in a given year; and,
• the elimination of any lifetime limits on coverage.

However, many features of the ACA push in the opposite direction and save consumers money. The individual mandate and federal subsidies greatly expanded the number of people purchasing coverage in the individual market, pushing premiums down both by increasing the sheer size of the market—the bigger the market, the lower the prices—and including many healthier people who previously went uninsured. In addition, the ACA created relatively transparent marketplaces where insurers must compete on premiums for products standardized by actuarial value, allowing competition to drive down prices.

Together, by creating a much larger and more competitive market, these changes placed strong downward pressure on insurance premiums, outweighing the factors pushing in the opposite direction. Stronger rate review and minimum requirements for how much an insurance plan must spend on actual health care expenses furthered this downward pressure on prices.

According to our analysis, average premiums for the second-lowest cost silver-level (SLS) marketplace plan in 2014, which serves as a benchmark for ACA subsidies, were between 10 and 21 percent lower than average individual market premiums in 2013, before the ACA, even while providing enrollees with significantly richer coverage and a broader set of benefits. Silver-level ACA plans cover roughly 17 percent more of an enrollee’s health expenses than pre-ACA plans did, on average. In essence, then, consumers received more coverage at a lower price.

The Adler/Ginsburg analysis was rebutted in this response by Jeffrey Anderson of (as you'd imagine) The Weekly Standard:

When comparing "average premiums in the individual market" before and after Obamacare went into effect, one would think that the numbers provided would be just that—average premiums in the individual market. Instead, Adler and Ginsburg compare the average premium pre-Obamacare with the premium for a particular kind of plan post-Obamacare. Moreover, they use a lower-end Obamacare plan—the second-lowest-cost "silver" plan. (Under Obamacare's Platonic-sounding scheme, only its "bronze" plans are cheaper than its "silver" plans, while its "gold" and "platinum" plans are more expensive.) Needless to say, this is not an apples-to-apples comparison.

The second half of their claim—that "consumers got better coverage" under Obamacare—is just an empty assertion. When pressured by conservative health-policy expert Chris Jacobs to defend it, Adler pretty much waved the white flag. In Jacobs's words, Adler then "tweeted that the claim of 'better' coverage 'has nothing to do with the analysis.'" This would be more convincing if that claim weren't repeated throughout Adler and Ginsburg's analysis.

Adler and Ginsburg claim that, in 2014, premiums for the second-lowest cost "silver" plan were "between 10 and 21 percent lower than average individual market premiums in 2013," the year before Obamacare went into effect. Yet the Government Accountability Office (GAO) has found that, in early 2013, the median plan in the median state for a healthy 30-year-old man had an annual premium of just $1,558. By comparison, according to the Kaiser Health Calculator, the nationwide average annual premium for the second-lowest cost "silver" plan for a 30-year-old man is now $3,186—more than twice as much. (True, that's for 2016, not 2014, but accounting for that 2-year difference isn't going to make this comparison look good for Obamacare.)

I should take a moment to note that there's an important difference between "median" and "average".

For instance, if you take 9 numbers: $100, $110, $120, $130, $140, $200, $250, $300 and $500...

...The median of all 10 would be $140, but the average of all 10 would be $206.

Having said that, Anderson makes some valid points here as well.

Both articles also make reference to how much the Congressional Budget Office had projected premiums to increase under the ACA vs. how things have actually turned out. From Adler/Ginsburg's analysis:

In 2014, the Congressional Budget Office highlighted that ACA premiums had come in 15 percent lower than expected, but premiums since then have continued to grow slower than projected (the average SLS plan premium grew at 2 percent in 2015 and7.2 percent in 2016 in the federally-facilitated exchanges), increasing the difference in 2016 to 20 percent.

...However, ACA marketplace premiums have beaten projections by significantly more than other areas of health care spending, therefore implying that the marketplaces have been particularly effective in driving low premiums. By comparison, premiums for employer-sponsored health plans (which the ACA only minimally impacts) in 2014 were roughly 12 percent below CBO projections from the same 2009 report and total national health spending in 2014 was about 7.5 percent lower than projected back when the ACA was enacted.

...and, from Anderson's rebuttal:

Last week, Brian Blase highlighted a more serious Brookings analysis that contradicts Adler and Ginsburg's claims. That analysis, a genuine study by Amanda Kowalski for Brookings's Economic Studies program, found the following: "Across all states, from before [Obamacare's implementation] to the first half of 2014, enrollment-weighted premiums in the individual health insurance market increased by 24.4 percent beyond what they would have had they simply followed state-level seasonally adjusted trends." In other words, Obamacare apparently increased premiums by about 24 percent versus what they otherwise would have been.

They then go on to quote the CBO itself to explain why the ACA "increased premiums by 24%" vs. what they otherwise would have been:

Many of the [Patient Protection and Affordable Care Act] regulations tend to increase average premiums, particularly in the nongroup market. For example, when they sell those policies, insurers must now accept all applicants during specified open-enrollment periods, may not vary people's premiums on the basis of their health, may vary premiums by age only to a limited extent, and may not restrict coverage of enrollees' preexisting health conditions. Insurers must also cover specified categories of health care services, and they generally must pay at least 60 percent of the costs of those covered services, on average."

The dueling banjos goes on and on. Heck, here's my own post about "average premiums on the individual market pre/post ACA" from just a month ago:

This answers a question which I've had a partial answer to for some time. On the overall individual market, here's the weighted average premium increase breakdown by year:

• 2008: 9.9 - 11.7%
• 2009: 9.9 - 11.7%
• 2010: 9.9 - 11.7%
• 2011: 7.0%
• 2012: 7.1%
• 2013: 10.3% (yeah, I know they mention an outlier, but I don't shrug off outlier states in my estimates, so I'm not gonna let HHS do so here)
• 2014: 2.4%*
• 2015: 6.9%** (The final average rate hike ended up being 5.6% on average, but that was the effective average rate hikeafter people shopped around; see below)
• 2016: 8.0%

*2014 was kind of a special case, however, since that was the first year that all new policies had to be fully ACA-compliant; as a result, there was a sort of "rebooting" of the whole indy market...

That "rebooting" footnote is actually much more significant than it appears, of course, since that's the year that all (well, most, not including grandfathered/transitional) plans on the individual market had to be ACA-compliant.

The irony of Anderson including the CBO quote above is that it could just as easily have been cited by a supporter of the ACA to make the argument for why the ACA is a positive thing:

• No denials for pre-existing conditions
• Guaranteed issue
• Limited age discriminiation, no gender discrimination
• Guaranteed minimum coverage
• Guaranteed minimum financial coverage

...and so on.

The other irony of Anderson's piece is that he actually wraps it up by citing none other than...myself:

Far from lowering premiums, Obamacare has sent them skyrocketing. Try finding anyone whose unsubsidized premiums have gone down under Obamacare. And there's no end in sight. Charles Gaba, an Obamacare supporter, currently estimates that the average premium increase that insurers are requesting for Obamacare plans in 2017 is a whopping 22.9 percent.

In fact, I've actually edged my national weighted estimates up slightly more since then as the final states are added into the mix.

The bottom line is this: Prior to the ACA, you had perhaps 50 million people (give or take) who had essentially no coverage whatsoever, either because they couldn't afford the premiums or because they weren't allowed to enroll in coverage at any price due to pre-existing conditions.

The real problem was actually a pretty simple one: Until now, no one had any idea just how expensive those people would be to treat.

The answer turned out to be "a sh*tload more than most people thought they would".

So, now they are allowed to be covered (and, for the most part, are required to)...and guess what? That adds a lot of cost to the system.

Prior to the ACA exchange policies going into effect in 2014, the individual market was roughly 10.6 million people, according to the Kaiser Family Foundation. As of this year, it has roughly doubled in size to 20.5 million, according to Mark Farrah Associates.

What it boils down to is:

• 1. You have 10 million more people paying premiums into the system (about half paying full price, the other half receiving partial government subsidies)
• 2. You have a lot of those 10 million additional people making expensive claims on their shiny new policies

From a pure, cold economic perspective, the debate going on between the dueling studies above is about how much the first is being cancelled out by the second.

The debate which should be going on from a human perspective is about whether more or fewer people are better or worse off health-wise and economically thanks to/due to the ACA than they would otherwise be without it.

Unfortunately, when it comes to healthcare, this is a nearly impossible task to measure properly.

For instance, let's take someone with cancer. Under the ACA, they're allowed to enroll in a policy which will cover their treatments. If they have a low income, they'll receive heavy APTC assistance and possibly CSR assistance.

Without the ACA, they'd be utterly screwed and would very likely go bankrupt trying to pay the full price for treatment, or die without it, or the first followed by the second.

To them, it isn't a question of "I was paying $X, now I'm paying 25% more than $X"; it's a question of "before, I would've died; now I hopefully won't."

Now multiply that person by several million others with similar horrible ailments, and the question is no longer purely about "how much will it cost" but also "how many lives can we save" and "how much pain/agony can we relieve"?

In the end, if ACA exchange premiums truly are "lower" than they would otherwise have been (even taking all of the factors and caveats into account), that's fantastic.

If, however, they aren't lower and in fact have increased more than they otherwise would have, the question then becomes is the benefit we receive as a whole worth that price or not?

From a purely fiscal POV, perhaps not. Then again, that goes right back to the "Don't Get Sick, but if you do...Die Quickly" meme.

From a human POV, this is a much tougher question for most people...but it's a very easy one for that cancer patient.