The cost of health insurance in 2014: Get ready for sticker shock

What will health insurance cost in 2014?

Will the new health insurance exchanges be ready on time or will the law have to be delayed?

There will be sticker shock

First, get ready for some startling rate increases in the individual and small group health insurance marketplace due to the changes the law dictates.

In a November 2009 report, the CBO estimated that premiums in the individual market would increase 10% to 13% on account of the health insurance requirements in the ACA. In the under 50 employee small group market, the CBO estimated that premiums would increase by 1% to a decrease of just 2% compared to what they would have been without the ACA. All of these differences in premium would be before income based federal subsidies are applied to anyone’s premiums.

In recent weeks, the Obama administration issued a series of proposed regulations for the health insurance market. Since then, I conducted an informal survey of a number of insurers with substantial individual and small group business. None of the people I talked to are academics or work for a think tank. None of them are in the spin business inside the Beltway. Every one of them has the responsibility for coming up with the correct rates their companies will have to charge.

Hold onto your hat.

On average, expect a 30% to 40% increase in the baseline cost of individual health insurance to account for the new premium taxes, reinsurance costs, benefit mandate increases, and underwriting reforms. Those increases can come in the form of outright price increases or bigger deductibles and co-pays.

In states with the least mandates or for health insurance companies with the tightest underwriting now, the increase could be a lot more.

But when you add the impact of the requirement that older consumers can be charged no more than three times as much as the youngest consumers (the usual standard is now a five times difference), premiums increase dramatically for the youngest.

For example, expect individual health insurance rates for people in their 20s and early 30s to about double.

People in their late 50s and 60s might see net decreases because of the benefit they will get from the rate band compression.

Small group rates won’t increase by quite as much as for those in the individual market––a baseline increase of 10% to 20%. Small group policies won’t be as hard hit as individual policies because the underwriting reforms aren’t as big a leap in this market. But small groups with lots of young people will be hit disproportionately since each person in the group has to be rated on an individual basis and then all of those covered rolled up into an average rate. Older groups might see rate decreases.

And, the new regulations require that insurance companies have to treat their old and new business the same. Most existing business will not come under the “grandfather” rules. That means most existing individual and small group customers can expect pretty much the same thing. That will be a shock to those who already have insurance and don’t think the new law will impact them.

The health law also sets a maximum individual deductible of $2,000 for the “Silver” plan in the small group market. However, the new proposed rules gave insurance companies flexibility to make the deductible higher if they can’t reasonably price such a deductible into a plan and still hit the coverage targets (i.e. covering 70% of all medical costs in the “Silver” plan). That flexibility is there for only one reason––it’s looking more and more like the health plans will have to put higher deductibles on at least some of these plans so that they can comply with the overall cost and coverage requirements.

Come October 1, consumers will find that they will be faced with very comprehensive health plans but those plans––including the lower cost “Bronze” and “Silver” plans––will have very high deductibles. Middle class families (300% to 400% of poverty), who aren’t fortunate enough to be in employer-sponsored plans and will be eligible for only partial federal premium subsidies, will still have to pay many thousands of dollars in premiums. They will also be confronted with a choice––pay the big premiums for a plan that will cover only 60% or 70% of their health care costs, with a big upfront deductible, or pay a fine equal to 1% of their income for each adult in the family.

Consumers with incomes in excess of 400% of poverty ($46,000 single and $92,000 family of four in 2014) are going to have to pay the full cost of these health insurance policies. But consumers who make less than 400% of poverty will have their premiums capped at a percentage of their income. So, anyone getting a subsidy will be insulated from the very highest premiums. Who will pick up the rest of the premium? Federal taxpayers.

Will the health insurance exchanges be ready on time?

In ten months, Americans without access to employer health plans are due to be able to purchase their own health insurance on the new health insurance exchanges.

So far, only 18 states have said they will run their new insurance exchange––and that does not necessarily mean they will all be ready. The feds are required to run the exchange if the state won’t do it––20 have already said they won’t do it and five more are “partnering,” which essentially means they are leaving most of the work to the feds.

Complicating this even further, ten months out we are still waiting for the detailed rules on how those insurance exchanges are supposed to operate.

Will the feds be ready to provide an insurance exchange in all of the states that don’t have one on October 1, 2013?

I have no idea. And neither does anyone else I talk to inside the Beltway. We only hear vague reports that parts of the new federal exchange information systems are in testing.

The former CIA director couldn’t get away with an affair in this town but the Obama administration has a complete lid on just where they are on health insurance exchanges and haven’t shown any willingness to want to talk about their progress toward launching on time — except to tell us all not to worry.

We are all worried. I would not want to be responsible for the work that remains and only have ten months to do it.

The feds keep extending the states’ deadlines but there is one deadline that isn’t moving––October 1, 2013.

Another big date

Given the big rate increases that are coming because of the ACA and the political risk the Obama administration faces if they don’t get the exchanges up on time, I would suggest there is another big date they need to be worried about — November 4, 2014.

The Republicans said this would not work. If it does not launch on time, or does with serious problems, I would not want to be an incumbent Democrat.

Robert Laszewski is President, Health Policy and Strategy Associates and blogs at Health Care Policy and Marketplace Review

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  • USKensington

    Pfft. when it doesn’t work, they’ll just blame the Republicans as always, and the dummy voters will believe them. We’re boned.

  • http://womanfoodshinyobjects.wordpress.com/ Brian Stephens MD

    So much for “Afforadable care”

  • http://blog.wcgworld.com/author/gmatthewswcgworld-com Greg Matthews

    I’m always surprised that this is such a surprise to people. Take an already-expensive system. Add 45M people who either are too poor to afford care today or need so much care that nobody can afford to cover them. Do nothing to reduce the cost of care or malpractice insurance/tort reform.

    Or, if you prefer: Add tons of cost to the system, but no new money to pay for it. Where else can that money come from – other than the people who are already paying for coverage today?

    My premiums went up 40% LAST YEAR – presumably by insurance companies preparing for the new world. I expect it to go up at least another 40% this year. I’m afraid that this insanity is the only thing that’s going to push us towards meaningful health reform … not just health INSURANCE reform.

    • http://womanfoodshinyobjects.wordpress.com/ Brian Stephens MD

      Yes, the insurance companies had a seat right next to the politicians during the whole healthcare debate and they have rubbed their hands together in giddiness ever since. I assure you, no matter what they say. The Insurance companies are THRILLED with obamacare.

  • Randy S. Risner D.C.

    First and foremost, we as a nation must first start taking better care of ourselves. It is not your doctors or insurance company’s responsibility for your health. Secondly, I would encourage people to open a HSA account and deposit the money you would spend on regular insurance premiums, get catastrophic health insurance w/a $5000.00 deductible, have a credit card for only health expenses with a $5000.00 line of credit. You may pay on an average $50.00 to $100.00 for your premiums. Cut out the middle man, who is only in the business to make money, from between you and your doctor. I have spoken with literally hundreds of doctors, and they all agree that the insurance companies, although they do provide a source of income, are the main reason our health care system is not effective. Any time someone other than the people treating the patient stand to make a profit on healthcare, people will suffer.

  • http://www.facebook.com/people/Anne-Gross-Beal/1116621445 Anne Gross Beal

    A lot of this mess could have been avoided if people bought their health insurance from the same guys who sold them their automobile or homeowners’ insurance. While we’ve all heard people claim “I don’t have health insurance because my employer doesn’t offer it,” we never hear them say “I don’t have health insurance because my agent doesn’t sell it.” The truth is people who don’t have health insurance are uninsured because, for what ever reason, they haven’t bought it. How health insurance became the responsibility of employers and/or the government is the real mystery here. People should be responsible for themselves.

  • Robert Luedecke

    As a 55-year-old self-employed physician, I know that the health insurance I can get is very expensive and it doesn’t cover very much. Fortunately, I am able to get coverage through my wife who is employed by a bank and my premiums went down and my coverage went up. An orthopedist I know has a secretary who got breast cancer and in one year the premiums doubled for all ten of the families in his small group. Two years ago we discovered our health insurance premium would be $2,000 per month for a high deductible policy if she retires before we are both 65. There may be some bumps in the road, but the previous system had some major problems.

  • http://twitter.com/ssnbn1 ssnbn1

    The ACA is about government control. Right to deny service/procedures for ‘useless eaters’ above 75 y/o; right to deny service to catastrophically ill children, right to remove gun rights from a comment made to a medical professional, access to deny service to political enemies. Read history…