Health Insurance

Average health insurance premiums fell after Obamacare took effect, study says

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You might not believe it's true, but more cost less after Obamacare began, a new analysis claims.

The average premiums in the nation's individual health insurance market "actually dropped significantly" in 2014, the year that the Affordable Care Act took effect, "even while consumers got better coverage," according to two health-care analysts whose findings challenge a popular narrative about Obamacare prices.

"In other words, people are getting more for less under the ACA," wrote Loren Adler and Paul Ginsburg in the article about their findings, published on the HealthAffairs Blog.

Adler and Ginsburg said their analysis shows that average premiums for a closely watched, important type of Obamacare plan — known as second-lowest cost silver plans — had average premiums in 2014 that "were between 10 and 21 percent lower than average individual market premiums in 2013, before the ACA." That's despite the fact that silver plans cover a larger percentage of customers' health costs than the average individual plan did before Obamacare.

The retail prices of the silver plans in each insurance market act as benchmarks for setting the federal subsidies that most Obamacare customers qualify for.

The authors say that prices of those benchmark plans are "still lower in 2016 than individual market premiums were in 2013, on average."

And even if Obamacare premiums jump by 10 to 15 percent next year, "they will still be far lower than premiums otherwise would have been in the absence of the law," the analysts say.

"That the ACA might have caused premiums to drop so precipitously when its marketplaces took effect may seem surprising at first — it was to us," they wrote.

"However, the premium reductions make more sense upon deeper analysis," said Adler, associate director of the Center for Health Policy at the Brookings Institution, and Ginsburg, who is a professor of the practice of health policy and management at the University of Southern California.

Their article comes as California's Obamacare marketplace has revealed that rates on that health exchange will rise by an average of 13.2 percent next year. Many Obamacare insurance plans elsewhere have proposed increasing premiums by high single-digit or double-digit percentages for coverage in 2017.

Those private plans, so-called individual market plans, are sold to individuals who do not have health coverage through either their jobs, or through government programs such as Medicare and Medicaid.

The article's title, "Obamacare Premiums are Lower Than You Think," reflects the fact that after Obamacare took effect in 2014 there have been frequent stories in the media about premium increases "for certain plans, in certain cities, or for certain individuals," the authors note.

Those stories have reinforced a belief that the implementation of the ACA has, on average, led to a marked increase in the price that people who buy individual health plans pay, as compared to what they paid prior to Obamacare.

The authors point out that such a belief is understandable, given the fact that ACA barred insurers from either denying coverage to less-healthy people, or charging them higher rates than healthy people. Obamacare also required health plans "to cover a broader set of benefits, and imposed new taxes and regulations," which also would be expected to increase insurers' costs, and hence premium rates.

But what actually happened, the authors said, is just the opposite.

They point to the fact that many ACA features actually "push [prices] in the opposite direction and save consumers money." Among them is the federal mandate requiring nearly all Americans to have some form of health coverage or pay a fine, "which greatly expanded the number of people purchasing coverage in the individual market, pushing premiums down by increasing the sheer size of the market."

"The bigger the market, the lower the prices," the authors wrote, adding that the new customers included many previously uninsured healthier people, who would tend to cost less to cover.

Another factor was the ACA's creation of "relatively transparent marketplaces" where insurers have to compete on premiums for plans that have standardized levels of coverage of costs.

"These changes placed strong downward pressure on insurance premiums, outweighing the factors pushing in the opposite direction," the article said.

In 2009, the authors estimated that the average annual premium in the individual market was $3,480 per year, or $290 per month. And that was for a plan that, on average, covered about 60 percent of enrollees' health expenses, with the remaining 40 percent paid out of pocket by customers in the form of deductibles, copayments and coinsurance.

By comparison, in 2014, the average premium for the benchmark plan was $3,800, or almost $317 per month, "only 9 percent higher despite the passage of five years," the authors wrote.

And they noted that silver plans cover about 70 percent of enrollees' health expenses.

"Adjusting for the difference in actuarial value [the amount of costs covered], this premium was actually lower in nominal dollars than that in 2009," the article said.

"Moreover, by any measure, individual market premiums had grown enough by 2013 such that the average $3,800 SLS [second-lowest cost silver] plan premium in 2014 represented a sharp drop from the previous year, despite covering a higher percentage of enrollee costs and offering a broader set of health benefits," the authors wrote.

They also said that while it won't be surprising if premiums rise by a lot next year given the "financial difficulties" many insurers are having with Obamacare plans, "even if ACA marketplace premiums grow significantly in 2017, they will still be much lower" than individual plan premiums would have been without the ACA, on average.