The headlines ahead of this year’s open enrollment period for marketplace healthcare at HealthCare.gov tell you pretty much everything you need to know about the unfolding narrative that is the Affordable Care Act (ACA) or, as it’s popularly known, Obamacare:
- Politico, Oct. 24: Key Obamacare premiums to jump 25 percent next year
- Bloomberg, Oct. 24: Obamacare Benchmark Premiums to Rise 25% in Sharpest Jump Yet
- Forbes, Oct. 25: Obamacare Premiums Increase 25%: Is the ‘Death Spiral’ Here?
- Fortune, Oct. 25: Obamacare Premiums for 2017 Rose 25% on Healthcare.gov
(These articles were published within a few days of each other because they were based on a U.S. Department of Health and Human Services study on premiums released earlier that month.)
Since 25% is a considerable number when it comes to money, and since the ACA has been on relatively thin ice since it was enacted three years ago, this type of press can sway the opinions of readers. In many cases, the issue is politicized and polarized between Democrats and Republicans. Our recommendation: Don’t buy into media bias/spin and get to the bottom of things.
In our effort to get to the bottom of the Obamacare rate increase, we did some research on our own, analyzing state-by-state numbers and reaching out to experts.
Over next few minutes, we’ll walk you through the state-by-state figures for how much premiums went up, then we’ll discuss the “Why” of the matter based on the insight we gained from experts.
The Healthcare Marketplace: A Brief Overview
If you’re unfamiliar with the healthcare marketplace, it’s a term used to describe health insurance plans available to people who can’t get health insurance through an employer – this includes the unemployed, freelancers and others. These plans are accessed through HealthCare.gov.
These plans are split up into four categories: bronze, silver, gold, and platinum. Each of these categories includes health insurance plans from various healthcare providers (carriers) that change from state to state. While all plans must meet the basic requirements of the Obamacare regulations, the monthly payments they charge (premiums) vary.
The marketplace emphasizes four facets of your health insurance plan:
- Deductible – How much you have to pay out of pocket in order to get the maximum benefits of your plan.
- Out-of-pocket maximum – The cap on how much you have to pay out of pocket.
- Premium – What you pay each month.
- Co-pays – What you pay for primary doctor visits, generic prescription drugs and visits to a specialist.
Consumers are responsible to choose the right combination of deductible, out-of-pocket max, co-pays and premiums. The four factors are usually related. If you have a low deductible and low co-pays, you can expect to pay a higher premium, and vice versa.
The dollar amounts of each of these four categories change depending on how much you earn, and on your premium tax credit. This credit is calculated by the government based on your income and family size and is used to reduce the cost of your premiums.
For example, if you buy a gold plan that costs $600 per month and you have a $300 tax credit, your monthly premiums will be $300.
To get a plan through the marketplace, you have to fill out an application that includes basic information about your age, address, dependents, income and whether or not you smoke. Once your information is entered, you’ll be provided with a customized list of plans with deductibles, out-of-pocket maximums, premiums and copays tailored to your family size and income.
Every year prices on these plans change. Sometimes they change because you earn more money, but other times they change because insurance companies raise rates.
How Premiums Are Calculated for the Healthcare Marketplace
Whenever a health insurance company (carrier) wants to raise rates on the plans they offer through the healthcare marketplace, they have to go to the insurance department of each state and ask for permission by requesting a percentage increase and provide sufficient evidence as to why they’re asking for that increase.
Once each state’s insurance office has the data and the increase request, they review the information and decide how much of an increase (or decrease) they’ll allow, says Susan Combs, CEO of New York-based insurance company Combs & Co. and an ACA expert.
To get a clear read on what the state-by-state rate increases looked like, we used numbers from ACASignups.net, a data-driven website that tracks average rate increases. This year’s numbers include all but one state – Louisiana.
We’re sourcing our data from ACASignups.net, a stats website run by self-professed numbers geek Charles Gaba, whose ACA website is a popular data source for news outlets and who has been featured in The Washington Post.
“For policy wonks and health-care journalists who have clamored for more information about Obamacare enrollment,” The Post’s Jason Millman wrote, “Gaba’s blog has become a must-read.”
The main reason we chose Gaba’s calculations is that his numbers are based on across-the-board rate increases, whereas the government’s rate numbers are based on very specific criteria: a 27-year-old person making $36,000 a year who is enrolled in Texas’ second-cheapest Silver plan.
State-by-State ACA Rate Increases
Now, onto the state-by-state numbers! Our list will include the average premium increase for each state, and we’ll divide it up into percentage tiers. The percentages we’ll list for each state reflect the average rate increase approved by each state’s insurance department:
50% and Above (Four states)
- Oklahoma – 76%
- Arizona – 57%
- Minnesota – 56.6%
- Tennessee – 56.1%
40–49% (Three states)
- Montana – 47.6%
- West Virginia – 46.8%
- Illinois – 45.1%
30–39% (Nine states)
- South Dakota – 37.9%
- Kansas – 36.6%
- Alabama – 36.1%
- Nebraska – 34.8%
- Texas – 34.1%
- Pennsylvania – 32.5%
- Utah – 31.7%
- Hawaii – 30.7%
- Delaware – 30.2%
20–29% (12 states)
- Iowa – 28.8%
- New Mexico – 28.4%
- Oregon – 26.5%
- South Carolina – 25.6%
- Missouri – 25.5%
- Maryland – 25.2%
- Connecticut – 24.8%
- Kentucky – 24.5%
- North Carolina – 24.3%
- Idaho 24%Maine – 23.5%
- Colorado – 20.4%
10–19% (11 states)
- Florida – 19.1%
- Indiana – 18.9%
- Ohio – 17.3%
- Michigan – 16.7%
- New York – 16.6%
- Virginia – 16.4%
- Wisconsin – 15.9%
- Mississippi – 15.8%
- Washington – 13.6%
- California – 13.2%
- Nevada – 10.6%
0–9% (10 states)
- Arkansas – 9.1%
- New Jersey – 8.8%
- New Hampshire – 8.8%
- Massachusetts – 7.5%
- Wyoming – 7.4%
- D. of Columbia – 7.3%
- Alaska – 7.3%
- Vermont – 7%
- North Dakota – 1.3%
- Rode Island – 1.3%
A Few Quick Observations About the Obamacare Insurance Stats
The stats we gathered from Charles Gaba’s site reveal that 30 of the 49 states who asked for premium increases were approved for rate hikes of less than 26%. Thirty-three of the 49 states had rate increases below 30%, while seven states had increases of at least 45%.
According to Gaba’s numbers, four states have more than 500,000 signing up for healthcare through the federal marketplace:
- Florida 1,742,819 – 19.1% increase
- California 1,575,340 – 13.2% increase
- Texas 1,306,208 – 34.1% increase
- North Carolina 613, 487 – 24.3% increase
- Georgia 587,845 – 32.8% increase
Of the top states, around 3.9 million will see below average rate increases, while nearly 1.9 million will experience rate increases above 30%.
As you can see, millions of people shopping for health insurance through the government’s marketplace website will see increases in their rates. But, according to the HHS, increased tax credits will offset those premium hikes.
“Marketplace tax credits adjust to match changes in each consumer’s benchmark silver plan premium,” the report said. “A 27-year-old with an income of $25,000 a year will on average get a monthly tax credit of $160, a 62 percent increase compared to their tax credit in 2016.”
That’s good news, but we’re more concerned about why premiums are increasing, because, for the most part, it’s not something that most consumers understand. Is it the “death spiral” of price increases that Fortune mentioned in their article, or is it just part of the increasing costs of health care? Are insurance companies trying to gouge consumers, or is there a flaw in Obamacare.
We don’t have all the answers, but we did our best to speak with experts who can shed some light on the reasons behind the increases.
The Experts Weigh in on Why ACA Premiums Are Increasing
One of the big reasons why premiums shot up this year, says Joe Welfeld, a former regional vice president of United Healthcare, is that insurance companies haven’t been able to assess a number of claims they’ll have to pay out to their policyholders.
It Was Hard for Insurance Companies to Predict Costs
To understand why that’s the case, we’ll have to go back to one of the main consumer benefits of the ACA: no restrictions on pre-existing conditions. This means that you could sign up for a health plan and not be charged higher rates or barred from receiving care for a sickness you had or were experiencing at the time you signed up.
“Health insurers can no longer charge more or deny coverage to you or your child because of a pre-existing condition like asthma, diabetes, or cancer,” the HHS says on their pre-existing conditions page. “They cannot limit benefits for that condition, either. Once you have insurance, they can’t refuse to cover treatment for your pre-existing condition.”
So, pre-Obamacare, insurance companies could look at consumers on a case-by-case basis, deciding which benefits they’d give and wouldn’t give. They could calculate premiums based on the individual, Welfeld says, which meant sick people would pay more and healthy people would pay less.
With the advent of the ACA marketplace in 2014, a huge influx of consumers was buying plans, and the insurance companies had no idea how healthy or sick these individuals were.
“Because they didn’t have insurance before, they may have had previous medical conditions that had not been addressed,” Welfeld says. “The bottom line is that these people are going to utilize the system at a very high rate – there’s nothing wrong with that – and insurance companies took on more risk.”
And because there was that unknown floating around, an insurance company’s actuaries (people who calculate risk and pricing) couldn’t get a good read on how much they’d be paying out for claims. Their job is hard enough, Welfeld told us, when they know what kind of customers they have.
“You are trying to predict patterns of behavior for a year that’s six or nine months away, and you’re trying to predict that behavior based on your previous experience,” Welfeld says.
So, when you throw new customers in the mix who could sign up while they have diabetes or other chronic conditions, the task of properly predicting costs becomes virtually impossible.
UnitedHealthcare reportedly lost more than $1 billion in 2015 and 2016 and, because of that, they withdrew from the healthcare marketplace in all but a few states. The company had about 500,000 individual enrollees through the marketplace.
Healthy People, in Theory, Were Supposed to Balance Out Costs
Susan Combs pointed out that insurance companies expected to balance out their high-utilization customers with younger, healthier people who wouldn’t use their plan.
“One of the biggest reasons behind the premiums increase is that insurance companies hoped to have more young customers, but they haven’t signed up in droves as was anticipated,” Combs told us. “Everything is balance – if the companies have young users who don’t’ have high claims, then their low claims balance out their high claims.”
An article from ModernHealthCare.com explains this principle well, even referencing the demise of UnitedHealthcare’s marketplace plans.
“Only 28% of exchange members in 2014 were in the coveted 18–34 age range and that percentage stayed level,” contributor Bob Herman wrote. “It’s below the 40% level many actuaries say is needed to create a more stable rate environment.”
And since insurers couldn’t deny or increase premiums if someone had a pre-existing condition, there was no way to stop sick people from flooding the market.
“The key … is making sure sick people don’t inundate the market, which would drive up premiums,” he wrote, “and deter healthy people from enrolling as a result.”
Penalties Aren’t Pushing Young People to the Marketplace Like They’re Supposed To
Both Susan and Joe pointed out that, in theory, Obamacare would encourage young people to sign up by making them pay the penalty if they didn’t. But that’s not exactly how things worked out.
In a 2015 article from The Wall Street Journal, reporter Stephanie Armour pointed out that foregoing a marketplace plan and paying the penalty saves certain consumers money.
She used the example of a Florida man who said he shopped the marketplace and decided that paying a fine and then paying cash for medical care was cheaper than the deductibles of the “affordable” plans he found in the marketplace.
Vice’s Wyatt Marshall wrote that, for the most part, Millennials would rather spend their money on beer and gas than health insurance. While the HHS estimates that 7 out of 10 people can get a plan for less than $100 a month, Marshall points out that high deductibles make cheap plans unappealing.
So, young people are willing to pay the $695 fine instead of, most likely, more than $1,000 in premiums and care through the marketplace plans.
And when they don’t sign up, everyone pays more.
“When young people don’t pay in, premiums rise to cover the cost of caring for older patients,” Marshall wrote. “Eventually, as has been the case in many parts of the country, insurers stop offering plans through Obamacare as the burden of providing coverage to patients who use their insurance a lot becomes too great.”
Conclusions: What the Average Consumer Can Do to Offset Costs
If you’re feeling a little discouraged by all this talk of rising premiums, take heart in a fact we mentioned earlier: tax credits should offset the cost of most premium increases.
Tax credits are calculated by combining your yearly adjusted gross income (AGI) with your family size, then comparing those to the federal poverty guidelines. The more money you make, the higher your premiums will be and the lower your tax credits will be.
1. Give a Good Estimate of Your Projected Income
Should you end up not making as much as you thought over the course of the year, you might get a refund because your tax credit was too small. However, if you underestimate your income, you’ll get more tax credits each month but, come tax time, you’ll have to pay the IRS the difference between what your tax credits were and what they should have been.
Our advice? Give the most accurate income estimate possible. Talk with your accountant about what a good estimate would be. He or she can give you an idea of what your AGI will be once deductions are calculated.
2. Shop Around Before You Renew
Another way to save a few bucks is to shop the marketplace even though you want to continue with your current plan.
According to the HHS’ numbers from 2016, people who shopped around and chose a different plan were able to save an average of $42 per month on their premiums.
3. Pick the Plan that Fits Your Needs
During the open enrollment period (Nov. 1 – Dec. 15), Healthcare.gov will let you apply certain criteria for your plan search. You can filter plans based on premiums and deductibles. Play around with these settings to get an idea of which plan fits your budget.
Then, use the site’s “Compare” function to compare and contrast the plans that best fit your situation. Remember, if you go to the doctor a lot, it may benefit you to pay higher premiums as opposed to higher deductibles. On the other hand, if you rarely ever go to the doctor, a low-end Silver plan or a Bronze plan will cost you less per month.
Don’t necessarily pick the cheapest plan, but don’t default to an expensive plan, either. Calibrate your plan to your need and budget.
We hope this article was able to help you understand why premiums are going up. Obamacare is a pretty complex issue with a lot of forces pushing and pulling premiums, deductibles, and co-pays. Feel free to contact us if you have any questions about the material included in this article.
In the meantime, if you’re on a tight budget and you have a hard time knowing when to go to the doctor and when to fight out a sickness at home, take a look at an article we wrote titled “Do I Have to See a Doctor?” We talk about how long wait times are to see your doctor, why those wait times are so long and what you can do to take care of yourself if waiting isn’t an option.