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A man holds up a sign directing people to an insurance company where they can sign up for the Affordable Care Act (Photo by Joe Raedle/Getty Images)

No, Obamacare Has Not Lowered Premiums

Jeffrey H. Anderson

In a Health Affairs article, Loren Adler and Paul Ginsburg from the Center for Health Policy at the Brookings Institution make the rather counterintuitive claim that Obamacare has actually lowered health insurance premiums. They boldly assert that “average premiums in the individual market actually dropped significantly upon implementation of [Obamacare], according to our new analysis, even while consumers got better coverage.” Los Angeles Times columnist Michael Hiltzik calls Adler and Ginsburg’s article an “important” new “study.”

The only problem with their analysis is that it’s erroneous.

When comparing “average premiums in the individual market” before and after Obamacare went into effect, one would think that the numbers provided would be just that—__average premiums in the individual market__. Instead, Adler and Ginsburg compare the average premium pre-Obamacare with the premium for a particular kind of plan post-Obamacare. Moreover, they use a lower-end Obamacare plan—the second-lowest-cost “silver” plan. (Under Obamacare’s Platonic-sounding scheme, only its “bronze” plans are cheaper than its “silver” plans, while its “gold” and “platinum” plans are more expensive.) Needless to say, this is not an apples-to-apples comparison.

The second half of their claim—that “consumers got better coverage” under Obamacare—is just an empty assertion. When pressured by conservative health-policy expert Chris Jacobs to defend it, Adler pretty much waved the white flag. In Jacobs’s words, Adler then tweeted that the claim of ‘better’ coverage ‘has nothing to do with the analysis.’ This would be more convincing if that claim weren’t repeated throughout Adler and Ginsburg’s analysis.

Adler and Ginsburg claim that, in 2014, premiums for the second-lowest cost “silver” plan were “between 10 and 21 percent lower than average individual market premiums in 2013,” the year before Obamacare went into effect. Yet the Government Accountability Office (GAO) has found that, in early 2013, the median plan in the median state for a healthy 30-year-old man had an annual premium of just $1,558. By comparison, according to the Kaiser Health Calculator, the nationwide average annual premium for the second-lowest cost “silver” plan for a 30-year-old man is now $3,186 —more than twice as much. (True, that’s for 2016, not 2014, but accounting for that 2-year difference isn’t going to make this comparison look good for Obamacare.)

Moreover, it used to be that Americans were free to buy cheaper plans. The GAO says that, in early 2013, the cheapest plan in the median state (the state whose cheapest plan was more expensive than those of 25 other states) for a healthy 30-year-old woman had an annual premium of just $744. Under Obamacare, a “bronze” plan, based on the nationwide average, will now cost her $2,516 in annual premiums. And if she makes $35,000 or more, she won’t get a dime’s worth of Obamacare subsidies—being too young and too rich. (Under the Obamacare alternatives advanced by the 2017 Project, the Hudson Institute, Ed Gillespie, Tom Price, and Scott Walker, she’d get a $1,200 tax cut for buying the insurance plan of her choice on the open market, more or less matching the tax break she’d get for having employer-based insurance.)

In truth, Obamacare offers a new kind of health insurance that no would purchase if they weren’t (A) forced by the federal government to buy insurance against their will, and (B) limited to the sparse choices Obamacare grants. Pre-Obamacare, there were expensive plans with low deductibles and wide doctor networks. There were inexpensive plans with high deductibles and narrow doctor networks. And there were plans that provided some combination of these features. But Obamacare offers a new combination that no one would have previously thought to buy—expensive plans with high deductibles and narrow doctor networks. That’s the triple crown of no-win plans.

Last week, Brian Blase highlighted a more serious Brookings analysis that contradicts Adler and Ginsburg’s claims. That analysis, a genuine study by Amanda Kowalski for Brookings’s Economic Studies program, found the following: “Across all states, from before [Obamacare’s implementation] to the first half of 2014, enrollment-weighted premiums in the individual health insurance market increased by 24.4 percent beyond what they would have had they simply followed state-level seasonally adjusted trends.” In other words, Obamacare apparently increased premiums by about 24 percent versus what they otherwise would have been.

The Congressional Budget Office offers some useful language to help explain why:

Many of the [Patient Protection and Affordable Care Act] regulations tend to increase average premiums, particularly in the nongroup market. For example, when they sell those policies, insurers must now accept all applicants during specified open-enrollment periods, may not vary people's premiums on the basis of their health, may vary premiums by age only to a limited extent, and may not restrict coverage of enrollees' preexisting health conditions. Insurers must also cover specified categories of health care services, and they generally must pay at least 60 percent of the costs of those covered services, on average.

The CBO concludes, “Together, the [PP]ACA’s regulations increase premiums noticeably in the nongroup market.” (Italics added.)

And Obamacare would be increasing premiums even more noticeably if its plans weren’t subsidized. Here, I’m not talking about the premium subsidizes that Obamacare selectively doles out, mostly to the near-poor and near-elderly, w“hile hiding $104 billion in federal spending in the process(Hudson Institute)”:http://www.hudson.org/research/12554-graphic-how-obamacare-hides-104-billion-in-federal-spending. Rather, I’m referring to the subsidies that apply to all Obamacare plans, in the form of “reinsurance.” As Jay Cost and I wrote in 2014,

Reinsurance amounts to a tax on most Americans' health insurance, including employer-provided insurance, in the amount of $63 a head this year….The money flows to those insurers who spend a substantial amount on sick exchange customers, thereby allowing them to lower their premiums. The CBO estimates that 'reinsurance payments scheduled for insurance provided in 2014 are large enough to have reduced exchange premiums this year by approximately 10 percent.' Most Americans don't know they are effectively subsidizing Obamacare exchange plans through taxes on their own insurance. This is yet another way that Obamacare creates 'winners' and 'losers' in society, with many of the losers being middle class.

Blase and coauthors Doug Badger, Ed Haislmaier, and Seth Chandler argue that the CBO lowballed this number; that reinsurance payments have actually reduced Obamacare premiums by 20 percent, not just 10 percent—at the expense of those with non-Obamacare plans. And yet Obamacare plans are still so expensive.

In addition, insurers originally lowballed their Obamacare premiums under the assumption that they would get bailed out by taxpayers, if they lost money, through Obamacare’s “risk corridor” program. When I ran the 2017 Project, we—along with groups like the Heritage Foundation—were heavily involved in ending this bailout. The effort was successful, and now insurers are having to price their Obamacare plans more honestly. Many insurers have decided to run for the hills instead.

So where do things stand today? If one averages the nationwide average premiums for a 21-year-old ($2,807), a 64-year-old ($8,420), and a split-the-difference 43-year-old ($3,809) for Obamacare’s second-lowest-cost “silver” plans, one gets an average premium of just over $5,000. If each of these three people makes $50,000, then, as Kaiser writes, “Your out-of-pocket limit for a silver plan can be no more than $6,600 in 2016.” Combine that good news with a narrow doctor network, and these three will each have hit the Obamacare trifecta: high premiums, high deductibles, limited access to care.

Far from lowering premiums, Obamacare has sent them skyrocketing. Try finding anyone whose unsubsidized premiums have gone down under Obamacare. And there’s no end in sight. Charles Gaba, an Obamacare supporter, currently estimates that the average premium increase that insurers are requesting for Obamacare plans in 2017 is a whopping 22.9 percent.

Repeal, anyone?

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