by Matt Stokes & John W. Redmann
November 7, 2016
The White House recently released data suggesting that premiums paid by people who purchase their health insurance plans on the Healthcare Marketplace (Healthcare.gov) will likely rise sharply in 2017. The average increase will be 22%, which is most unwelcome news to those who purchase their healthcare plans on the Marketplace. According to the Obama Administration, however, most Marketplace users will not pay for this premium hike out of pocket because they receive subsidies which will increase along with costs.
That being said, it's worth exploring who will and will not be affected by the premium hikes, and to do that we need to explain how the Affordable Care Act works and what it does.
The Affordable Care Act (a.k.a. "Obamacare") expanded access to Medicaid for millions of Americans. Just this year, hundreds of thousands of citizens in Louisiana were able to obtain Medicaid coverage for the first time because of the Affordable Care Act. These people will not be affected by the premium increase.
The Act also established an online marketplace on which people who make too much money to obtain Medicaid and who do not receive health coverage through their employer can purchase plans. For those who make 400% of the poverty line or below, the federal government provides subsidies to help pay for insurance premiums. Subsidies are larger the lower the person's income. 83% of Marketplace customers receive subsidies to help pay for their premiums; these people will be largely unaffected by the premium hike. Because the subsidy each individual receives is based on his or her income—not the cost of the premium—a premium increase means an increased subsidy.
But for 17% of Marketplace customers, premium prices will drastically rise in 2017. This is very bad news and it is indicative of larger problems within the healthcare system.
One of the main goals of the Affordable Care Act was to make healthcare more affordable to more people. One of the ways health insurance costs fall is when a health insurer has younger and healthier customers. The opposite has instead happened—Marketplace customers tend to be older and less healthy. When an insurer has to pay for more expensive healthcare, it raises the cost of premiums. Many younger people are opting not to buy health coverage at all, deciding that paying the individual mandate penalty for being uninsured costs less than paying monthly premiums. As a result, Marketplace enrollment in 2016 was less than half of what the Congressional Budget Office had forecast them to be.
The premium hikes come just as many insurance companies (including Aetna and United) are withdrawing from the healthcare exchanges. In many parts of the country, there will only be one insurance company providing plans on the Marketplace, leaving customers with no real options to choose from. Many Marketplace customers will have to switch plans for 2017 because their old insurer has left. States with fewer insurance companies (which tend to be smaller states like Louisiana) will see the highest premium hikes, the result of low or no competition among insurance providers.
These are huge problems. Generally, when a major act of Congress such as the A.C.A. is shown to have severe defects, Congress creates fixes; this has not happened with Obamacare, as our legislators in Washington have shown a complete unwillingness to improve the system.
On the other hand, the law has been a major success in other areas. The rate of uninsured people in the United States has fallen below 10% for the first time ever. More people have health insurance than ever before because of the law, with the Hispanic population's uninsured rate falling most significantly. Most of these people will not be affected by the premium increases, which means that healthcare truly has become more affordable for many people.