Off the Charts Blog | Center on Budget and Policy Priorities

Insurers have begun to submit, to states, the rates they want to charge for coverage in 2014, and their proposals show that the new, federally financed premium subsidies that health reform will make available in 2014 will help reduce what low- and moderate-income people will have to pay for coverage.  In many cases, the subsidies — for which people up to 400 percent of the poverty line will be eligible — will more than compensate for the average premium increases that health insurers are warning about in the individual insurance market, as we’ve explained.

Take Oregon, where the Insurance Division provides transparent information about the rates that insurers have proposed for the individual and small-group insurance markets and examples of how much people would pay in different parts of the state under the proposed rates.  (The rates are still under review.)

The chart below, which illustrates an example drawn from Oregon’s proposed rates, illustrates how subsidies would cut insurance costs for several sample enrollees.  The subsidies are based on the cost of a benchmark plan available in the Portland area and are structured so that people won’t pay more than a set percentage of their income for basic coverage.

As the example shows, people with lower incomes will get more help paying their premiums than people with higher incomes.  The subsidies will also take age into account, so enrollees’ contributions will be the same no matter their age, even though the base price of plans will be higher for people who are older compared to those who are young.  (In addition to the premium subsidies, people at lower income levels also will be eligible for help with the deductibles and co-payments charged under their plans.)

The story is similar in California, where officials announced yesterday the plans that the state’s insurance exchange, known as Covered California, is likely to offer.  The announcement also included preliminary information about sample rates, which showed how subsidies could significantly reduce what low- and moderate-income people will pay for coverage.

These subsidies will make health coverage more affordable for millions of people.  In a future post, we’ll explain how these enrollees can further reduce or increase their premium contributions depending on which plan they pick.

A House subcommittee is putting health reform in the hot seat again today, when it holds a hearing on the “looming premium rate shock” that health insurers have warned about.  But widespread rate shock isn’t looming.  In at least a few states where insurers have already proposed their 2014 premium rates, the doomsday predictions of skyrocketing premiums have not materialized.

Yes, a relatively small number of people with coverage in the existing individual insurance market can expect premium increases in 2014, particularly if they are young and healthy, are not eligible for new federal subsidies or expanded Medicaid coverage, and have a relatively skimpy plan today.  But others will pay less, and still others will be able to get better benefits for about the same premiums.

Moreover, health reform means that uninsured people and those who have health problems will no longer be shut out or priced out of the individual insurance market.  Millions of people will be eligible for new federal subsidies to help them pay their premiums and cost-sharing charges, which will offset supposed rate shock for many people.

The House Energy and Commerce Oversight and Investigations Subcommittee, collected a trove of documents from insurance companies to prepare for its hearing today.  The documents tend to emphasize the largest potential rate increases and the types of people — men, in particular — who may experience them.  Insurers developed many of these projections as the industry was lobbying to repeal or delay specific provisions of the health care law, such as the health insurance tax and new restrictions on what older people can be charged for coverage compared to younger people.  They don’t necessarily reflect the premiums these companies actually plan to charge consumers in 2014, and it’s not clear how many of the higher-rate scenarios will actually occur.

Now, the companies are preparing to sell insurance in a reformed marketplace.  We are starting to see the actual premiums that insurance companies want to charge next year, and greater transparency and competition are helping tamp down premiums, at least in some states.  In Washington state, some people would pay less in premiums or pay about the same prices for more comprehensive coverage if recently proposed premiums take effect, in contrast to what the industry had predicted.  And in Oregon, after the insurance department posted proposed rates from various insurers, two companies with relatively higher premiums said they would redo their requests and submit lower rates after seeing their competitors’ rates.

In both of those states, regulators are reviewing the insurers’ rate proposals to decide whether to approve them under health reform.  Other states are doing the same, so more data points are on the way.  We expect that they, too, will show little evidence of widespread rate shock.

Health insurers are starting to submit, for state review, their premium rates for the coverage they will offer in the individual and small group markets next year, when the major components of health reform take effect.  The latest batch comes from Maryland, where the largest insurer, CareFirst, has asked the state for a 25 percent average rate increase for its 2014 individual-market plans compared to its 2013 products.  Health reform critics may cite this as the latest evidence of so-called “rate shock,” but a closer look at the CareFirst proposal shows that isn’t the case.

• The 25 percent average increase that has received so much attention is an average across all of the plans that CareFirst and its affiliates will offer.  Notably, CareFirst is assuming that 80 percent of the parent company’s 2014 expected enrollment will be in plans offered by BlueChoice, for which CareFirst is predicting an average 12 percent annualized rate increase compared to 2013.  That’s not insignificant, but it’s in the range of the increases people in the individual market have typically seen before health reform.

• Sixty percent of CareFirst’s 120,000 members in Maryland’s individual insurance market are enrolled in “grandfathered” plans that don’t have to comply with some of health reform’s major changes yet and so aren’t affected by the requested increase.

• Consumers care most about what they actually pay for coverage, and these filings don’t show that.  The premiums that people will pay will be based on additional factors such as age and geography.  And as we have written previously, a large share of the people in the individual market, including the young and healthy people that insurers want to attract, will get substantial help paying premiums through the tax credits that health reform will make available.

• Catastrophic plans will be available for people under age 30 and certain other groups.  So the relatively small share of young and healthy people who won’t be eligible for subsidies and are willing to assume the risk of much higher out-of-pocket costs have a lower-premium option.  The BlueChoice Young Adult plan (with a $6,350 annual deductible) has an average per-member, monthly rate (according to the preliminary filings) that is roughly half the rate of a mid-range plan with a $2,000 deductible that is open to people of all ages.

Maryland’s Insurance Administration must still review CareFirst’s request, determine whether the proposed rates are based on reasonable assumptions, and decide whether to approve the proposed rates, with final prices becoming available to consumers by this fall.

As we recently noted, claims of “rate shock” from health reform’s changes to the health insurance markets are overblown.  But a new report has generated considerable attention to this issue again, with health reform critics claiming that it’s the latest evidence that people will have to pay much more for their coverage.

The study, sponsored by the Society of Actuaries (SOA) and authored by the Lewin Group and Optum Inc., had this headline number:  it will cost insurers nationwide an estimated 32 percent more to cover enrollees in the individual insurance market.

That’s not a 32 percent increase in the premiums that consumers in the individual market will pay.  It’s an estimate of the overall increase in costs that insurers will pay due to factors such as some higher-cost uninsured people entering the market.

The report did not factor in several elements of health reform that are expected to cut consumers’ premiums.  Most importantly, it did not account for health reform’s premium tax credits that will significantly reduce what many people will pay for coverage in the individual insurance market through the new health insurance exchanges.  It also did not include the impact of so-called risk-mitigation programs, such as risk adjustment and reinsurance, which will help to protect insurers that take on higher-cost enrollees or face unexpectedly high costs and, in turn, help keep premiums stable.

In fact, the actuarial firm Milliman issued a report for California’s exchange at about the same time as the SOA study.  The Milliman report estimated the overall effects of various aspects of health reform on the premiums that consumers will pay in the state’s individual insurance market, with promising results.  It noted that a “significant portion” of people in the individual market will be eligible for premium credits and found that after taking the premium credits into account, single people with incomes less than 250 percent of the federal poverty level (or about $29,000 a year) will pay an average of 84 percent less for their premiums.  Individuals with slightly higher incomes, between about $29,000 and $46,000 a year, can expect the cost of their premiums to fall an average of 47 percent.

The Milliman report found that higher-income people not receiving subsidies could pay more, on average, for their premiums, but also noted that currently uninsured people will pay less in premiums on average in 2014 than they would for coverage today.

For an in-depth discussion of both the SOA and the California exchange reports, see this blog post from the Georgetown Center for Health Insurance Reforms and this article from Kaiser Health News.

The insurance industry and its allies warn that health reform’s limit on how much more insurers can charge older people than younger people for coverage will make individual insurance much more expensive for young adults.  But a new Urban Institute analysis finds that this claim of “rate shock” is “unfounded.”

Starting in 2014, insurers in the individual and small-group insurance markets will be able to charge older people no more than three times what they charge younger people.  This is narrower than the five-to-one differential that is typical today, meaning that (all other things being equal) premiums should rise somewhat for younger people buying coverage in the individual market.

But, as the Urban Institute paper points out, the large majority of young people affected by this will also become eligible for premium subsidies to help buy coverage in the new exchanges that health reform will create, or for Medicaid (if they live in a state that adopts health reform’s Medicaid expansion).  As a result, the age-rating change “would have very little impact on out-of-pocket rates paid by the youngest nongroup purchasers.”

Specifically, the study found:

• 92 percent of people ages 21 to 27 projected to buy an individual plan in an exchange in 2017 are expected to have incomes less than 300 percent of the poverty line, so they would be eligible either for Medicaid (if their state expands it) or for substantial subsidies to help pay premiums in the exchange.

• Similarly, 88 percent of 18- to 20-year-olds projected to buy a plan in the exchange are expected to be eligible for premium subsidies or Medicaid.

The study also notes that among the estimated 951,000 young adults ages 21 to 27 who now buy coverage in the individual market and have incomes too high to qualify for premium subsidies or Medicaid, two-thirds are age 26 or younger and in families with access to employer coverage.  That means they could get coverage under health reform’s requirement that insurers allow parents to add children up to age 26 to their job-based plans.