2014 Healthcare Reform Insurance Rates: Vindication or Condemnation?

Depending on who you listen to, when California announced its 2014 individual health insurance rates for its state-sponsored marketplace, Covered California, it was either a “pretty good deal,” with “no sticker shock” that proved that the healthcare reform naysayers were crying wolf, or “Rate Shock” from a “blizzard of regulations and mandates [that] drives up the cost of insurance” demonstrating that the Democrats were driving the ship of state off a waterfall.

As usual, this discussion about healthcare reform starts from a partisan posture, with, on the one side, a healthcare expert from a left-leaning publication putting a positive spin on the news, and a healthcare expert from a right-leaning think tank spinning negative. So if everything you read out there is just political partisans trying to score points for their side, what’s the straight story?

Of course, the straight story is nuanced and somewhat complicated, as they often are. The truth is, looking at these two stories, that both analysts are right. They’ve just chosen different facts to be right about.

Fact #1: Currently, young, healthy individuals who opt to buy individual health insurance will get low rates, because health insurance companies will only accept the healthiest people at their lowest rates. So when looking at the lowest that a theoretical person could pay, individual rates are always way lower than small group rates, because in a group plan, insurers have to take on employees with chronic illnesses and those at risk of severe disease with costly treatments.

Fact #2: Larger groups can negotiate better rates than smaller groups, because one or two cases of cancer in a large group will be balanced out by large numbers of employees with reasonable costs.

Fact #3: No matter how large the group is, it will always be cheaper to cherry pick the healthiest people and exclude the rest.

Fact #4: Even if you get individual insurance while you’re young and healthy, as you get older or have more health issues and start to make claims, your insurance company will start seriously raising your rates. It’s not like life insurance where you lock in a low rate for life. It’s more like car insurance where they jack up the price or even cancel your policy if you wreck your car too many times.

Fact #5: Obamacare does add some mandates to insurance plans around mandatory preventative care, elimination of lifetime maximums, and other provisions that logic dictates should cause the average plan to increase in price at least modestly.

Fact #6: Covered California rates are indeed lower than the cost of a small group plan for the same person.

I think we could get both The New Republic and Forbes Magazine to agree on the above facts. So where’s the difference of opinion coming from? Forbes says that the California press release was “misleading” because the cost of an individual plan under the new rules would be a lot higher than the cost of individual insurance; double or more. So it’s an “apples to oranges” comparison. But comparing the cost of insuring anyone with the cost of insuring a hypothetical person with no history of health issues isn’t exactly apples to apples either.

What the new healthcare law does, in essence, is take the entire population of each state and treat them like a single large group, taking advantage of Fact #2, and giving everyone buying power. Of course, the problem is that Fact #3 persists, so there are some people who would have qualified for cheaper insurance before the exchanges existed, and now will have to pay what the group pays. They will, for example, have to pay $200 per month instead of $100 in an extreme example.

So if you want to cheer for the new healthcare law, you focus on the fact that the average healthcare consumer will pay the same or less in the state marketplace, and if you want to jeer, you focus on the portion of the market who will have to pay much more.

Then to pile on, if you’re anti-, you blame that on the mandates and regulations (Fact #5), and if you’re pro-, you hold up the Fact #6 rate comparison and rest your case.

For employers, healthcare reform will bring some positives and some negatives, and the balance between positive and negative will vary tremendously depending on your employee demographics and the choices you make about how to respond to the change. The fact that new state marketplace rates may be higher for young, healthy individuals is relevant, but it’s probably a lot more relevant that many employees will get better rates in the exchanges than many companies are currently paying for a group plan.

The last fact that we should mention is that regardless of your political orientation, there’s a new healthcare law in town, and neither denial nor outrage will prevent it from going into effect. And if you currently have a group health plan, you might very well find that both your company and your employees could end up paying less money than you’re currently paying. And if you have part-time employees who aren’t on your plan, they’ll also be able to get affordable coverage. If you want to find out how you can bring such a rosy scenario about, contact Benefitter.