Comparing Individual Marketplace Premiums to Small Group is Disingenuous

After a lot of confusion late last month regarding 2014 health insurance rates in Colorado and information about which carriers would be offering policies in the exchange (Connect for Health Colorado), off the exchange, or both, a lot of the dust started to settle late last week and more information has become available both in terms of rates (although they won’t be finalized for another couple months) and carriers.  The Colorado Division of Insurance has released a full list of the carriers that submitted rates for next year, including details regarding whether each plan will be for individual or small group, and sold on exchange, off exchange, or both.  Detailed rate information is available from some carriers on the Colorado Division of Insurance website, although there will likely be a lot of change between now and October.

As soon as rate data started becoming available in a few states, both supporters and opponents of the ACA jumped on the info and used it to paint two very different pictures.  HealthBeat’s Maggie Mahar (who has astutely and accurately rebuked a lot of political spin and fear-mongering from opponents of the ACA ever since it was signed into law) called out Avik Roy for his critical view of the new rates, noting that he was comparing “apples to rotten apples” in his Forbes article about rate shock.  But Roy did make a very good point in his article, which was based on the release of rates in CA.  He noted that

“The rates submitted to Covered California for the 2014 individual market,” the state said in a press release, “ranged from two percent above to 29 percent below the 2013 average premium for small employer plans in California’s most populous regions.”

That’s the sentence that led to all of the triumphant commentary from the left. “This is a home run for consumers in every region of California,” exulted Peter Lee.

Comparing Individual Marketplace Premiums to Small Group is DisingenuousRoy went on to point out the key words there, which might have gone unnoticed by people who aren’t in the health insurance industry or paying very close attention to the details:  The rates for the new individual market are being compared to the existing rates in the small group market.

It is not at all surprising that the new individual rates are looking similar to existing small group rates.  Earlier this year I wrote about how difficult it was going to be for the individual market to be priced significantly lower than the small group market once medical underwriting was no longer a factor.

But I’m not sure that most people (other than business owners) are completely aware of how high small group health insurance premiums are.  As we’ve noted many times, people who have employer-based health insurance are often insulated from the true cost of the coverage, thanks to the fact that at least a portion of the premium is paid by the employer.  Some people started to see those details reflected on their W2s this year, but I would say that total health insurance premiums for workers and their families are generally not common knowledge outside of the HR department.  When you ask most workers what their health insurance costs, they are likely to answer with the total amount that is deducted from their paychecks, not the total amount that is remitted to the insurance carrier.

My concern when I see press releases like the one in CA – comparing individual premiums to small group premiums without any explanation of how much those currently differ – is that people might be misled into believing that the individual premiums that they currently pay aren’t going to change much next year.  If you skim over the details of that press release and are not aware of the huge difference in price between existing individual and small group policies, you might not be aware that new individual rates that are from 2% above to 29% below small group premiums are still going to be significantly higher than current individual rates.

People who purchase their own health insurance in the individual market might not have a good understanding of what the prices look like in the small group market.  It would be much more informative if the new rates were compared to existing individual rates instead.

The point has been made many times that the new policies are going to be better than existing coverage, with lower out-of-pocket maximums and more mandated benefits.  For some people, that will be a welcome change.  But for families and individuals who go to great lengths to stay healthy – only needing health insurance in case of a catastrophic illness or injury – and have been willing to take on a higher deductible in order to get lower premiums, the options are going to be limited in the future – and probably significantly more expensive.

Subsidies will take up the slack for families that qualify.  But not all families qualify for subsidies.  A family of four with a household income of $80,000 next year would qualify for subsidies to pay the portion of their health insurance premiums that exceeds $7,600.  If that family has been purchasing a middle-of-the-road health insurance policy for around $630/month this year, they would see very little change in out-of-pocket premiums next year.  But if that family has chosen instead to have high deductible coverage, they might be paying a lot less than that for their current policy.  And telling them that the coverage they’ll get next year is going to be a lot more expensive – but with better benefits – isn’t likely to go over well.  They opted for a high deductible plan in order to keep the cost down.  If they had wanted better coverage with higher premiums, they would have been buying it already.

Our family of four pays $403/month for an Anthem Blue Cross Blue Shield policy that has a $3500 deductible and an additional $3500 in out-of-pocket exposure per person, with a maximum of two family members having to meet the out-of-pocket limits in a year.  We also pay an additional $45/month to have an accident supplement that will reimburse us up to $5000 if we need medical care as a result of an accident.  So far, injuries and well-checks are the only time we’ve ever used our health insurance, so the accident supplement seems like a good addition to the high deductible health insurance policy.  We have a lot of clients who have opted for the same type of coverage: high deductible, in exchange for lower premiums.

Maggie Mahar chastised Avik Roy for his rate shock piece, tweeting about his “apples to rotten apples” comparison of plans available in the CA exchange to “junk” available on the low-end of the pricing scale on eHealth.  I agree that in the individual health insurance market, there are some plans with significant out-of-pocket exposure and a lot of gaps in coverage.  Most of these plans don’t appear on reputable quote comparison sites though, and are instead sold by captive agents (and surprisingly enough, they’re not usually among the cheapest plans on the market – sometimes, you don’t get what you pay for).  The plans on the very low end of the pricing scale (like the ones that Roy was considering in his article) on good quoting sites tend to just be very high deductible coverage.  Some of these plans are also sold without prescription coverage, which I would say is an alarming gap in coverage that should be avoided.  But if a policy has solid coverage after the deductible is met, I don’t think it’s “junk” just because the deductible is high.  For some families, a high deductible is exactly what they need.

We’re continuing to look at specific rates for individual coverage from the carriers that submitted rates for policies here in Colorado, and we’ll have more to say about this in the coming weeks.  It is difficult to separate the spin from the reality on this issue.   Health care reform is such a politically charged topic and people on both sides of the political spectrum are emotionally invested in an “I told you so!” victory for their side.  I would say that the truth lies somewhere between the polar opposites presented by the Right and Left.  And the premium impact on specific individuals and families will vary tremendously based on what type of insurance they are accustomed to buying, and what income they earn.

About Louise Norris

Louise Norris has been writing about health insurance and healthcare reform since 2006. In addition to the Colorado Health Insurance Insider, she also writes for healthinsurance.org, medicareresources.org, Verywell, Spark by ADP, and Boost by ADP, and Gusto. Follow on twitter and facebook.

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