Rate Shock and Awe in California

I have to say I was surprised with the press reports last week that there wasn’t “rate shock” in California when the California exchange offered preliminary information about their new plans and rates.

At least one prominent health actuarial group had predicted a 30% baseline increase in costs for California’s new health insurance exchange plans under the Affordable Care Act (ObamaCare”).

As the director of the California exchange put it, “These rates are way below the worst-case gloom-and-doom scenarios we have heard.”

But a few days later there is lots more information coming out and it would appear we have a case of apples to oranges to grapefruit. And, we have a pretty good case of rate shock.

First, the exchange officials pointed out that we have to be careful to compare apples to apples when looking at 2013 rates and comparing them to the 2014 exchange rates because the 2014 exchange plans have far more generous benefits.

Yes we do, particularly when the California exchange forces us to give up our apple and buy a more expensive orange.

One of the reasons health insurance in the exchange will cost a lot more in most states is because the new health law outlaws many of the existing plans now being offered and requires only those much richer plans to be sold.

Are people going to get more coverage for their money? Yes. Do they want more coverage if the premium costs for those plans is a lot higher? Likely yes if taxpayers are paying for most of it. If not, clearly they didn’t want to pay for it before. Come January, lots of California consumers in the small group and individual market are going to get a letter from their existing insurer telling them their current plan is no longer available and the cost of the new required plans will be a lot more.

Simply, the new law is taking plan design choices away instead of letting the consumer decide what is good for them. Does that matter in California?

As the LA Times reported, “The average premium for individual plans sold through EHealthInsurance in California was $177 per month last year. Covered California said the average premium for the three lowest Silver plans statewide will be $321 a month [+81% over two years], albeit for more comprehensive benefits.”

For those insured right now, and the estimated 40% that won’t be eligible for a federal premium subsidy, that sure looks like rate shock to me. For the 60% who will get a subsidy, this means the taxpayers are going to have to fork out lots more money.

Then one of the largest insurers in California, Blue Shield, announced that their average rate increase would be 13% under the new law. That sure looks better than the predicted 30% increase for California exchange plans.

But wait, that Blue Shield exchange plan in LA, for example, does not include UCLA Medical Center or Cedars Sinai. In fact, Shield’s exchange network includes a total of only 24,000 physicians compared to 66,000 doctors in their full PPO network––only 36% of their usual network docs will be available.

Last week a national player told me there is a nationwide trend growing where the insurer offers a very limited list of providers exclusivity in their exchange plans for deeper payment discounts in the 30% range––the narrow network plan would be the health plan’s only offering in the exchange. The tactic was described to me as a “quasi Medicaid strategy for the exchanges.”

Let’s be clear, “narrow network” plans that contract with fewer lower cost providers are a legitimate cost containment strategy. But Shield is only offering the narrow network in the exchange. While some health plans will sell their broader exchange network outside the exchange, consumers can only get the federal premium subsidy inside the exchange. Looks like oranges to grapefruit to me.

The California exchange touted its announcement saying, “This is a home run for consumers in every region of California.”

Let’s see what California’s individual and small group market consumers have to say once they start getting those renewal letters and go to the provider directory to see which doctors and hospitals they can go to.

An aside: I have to give LA Times reporter Chad Terhune lots of credit for staying with this story. During the past few days, he has written three articles (see links above). The first generally summarized the California Exchange press conference, the second dug a little deeper, and the third really got to the heart of the matter. In the end, LA readers got the whole story.

Robert Laszewski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog, where this post first appeared.

18 replies »

  1. Medical services need to be competitively offered with price transparency. Given the information, consumers can then make more informed choices. An example is a recently enhanced tool from BCBS that shows out the door prices for many different procedures. In my case, I was “shopping” for a colonoscopy since I now have an HSA plan and now I really do care about price. The price differences between the 20 or so practices was dramatic and I can definitely save money by not using my incumbent physician.

  2. It is not of any great import whether 41 year old males have health insurance. Aside from accidents and addictions, they file very few claims,

    But the ACA needs their money,

    The ACA wants to subsidize women of child bearing age, and both sexes over age 55. And that is long overdue in the individual market especially. Having health insurance policies that do not cover maternity has been the shame of a nation.

    But rather than raise income taxes to give direct subsidies, we have an ACA
    that needs to collect more premiums from young men.

  3. “I am a radical socialist who believes that you shouldnt be screwed over by society because of your bad luck. ”

    I respect your view. The unintended consequences shouldn’t be ignored, though. Will anyone ever take a raise to go from 45k/year to 47k/year? Will employers cut full timers to part timers, or cut positions entirely? If you’re a family of 4, are you going to send your spouse to work and then have to pay for child care and lose your subsidy, or does it make more sense to not work and babysit your own kids and keep the subsidy?

    If you’re on Medicaid and getting free insurance that would otherwise cost you 9.5% of your MAGI, are you going to be motivated to pull yourself out of Medicaid levels? Especially if you’re also eligible for other government assistance? If you’re really a socialist, I suspect you don’t care about the disincentive to work/improve but it’s an issue many will face and it will harm the economy long term.

    “But if you want to compare pricing of 2 different things and call it the same, don’t do it without expecting your head to be bitten off”

    Why does Mr. Lee still have a head?

  4. K–I like being hostile, makes it more fun!

    I am a radical socialist who believes that you shouldnt be screwed over by society because of your bad luck. If you want to accept an insurance system that sells still overpriced insurance to people who don’t need it and screws the people who do, then bully for you.

    But if you want to compare pricing of 2 different things and call it the same, don’t do it without expecting your head to be bitten off

  5. Matt,

    Why so hostile? That’s no way to further a discussion.

    Obviously guaranteed issue vs. medically underwritten plans is a big deal. But is it not valid to discuss those who can get through medical underwriting and their repercussions- especially because they currently represent the majority? You speak of “intellectually dishonest” and yet present that the overwhelming majority of people (those with hangnails) cannot get insurance. This is not the case.

    There is a large subsection of folks that is going to pay dearly in order to allow others access. Is it not valid to discuss this?

  6. How stupid are you (and Avik Roy) that you don’t understand medical underwriting? That price does NOT cover anyone who has ever had a hangnail or worse. Go back and read 8 years of THCB before you ever dare show your face here again.

    Read my comment–I’m comparing apples to apples. Oh, and that group rate my small business pays went up 30% a year for the last 5 years in a row. Surely all Obamacare’s fault…..especially the 2 years before it was passed

  7. This is not my material, but thought it prudent to share:

    If you go to ehealth[insurance.com] and run a quote for a 40 year old male in Contra Costa (94505) and compare plans for Health Net (one of the players in their exchange) you will find that a plan that is currently available today will run about $131; if you compare that to Health Net’s Silver Plan, it will run you $362. Similar deductibles, similar coinsurance, more than double the price tag.

    So far, most announcements have unfairly compared, even Forbes. Peter Lee from Covered California unfairly did a double manipulation. The first is that the benefits of the Silver plan are less than [many] IFP plans today, and the second is that he compared the IFP (Individual/Family Plan) rates to Group rates.

    To make matters worse, his answer to people who challenged him had two more manipulations in comparison. He claimed he had to use group rates because IFP rates were going up in 2014 to that level. All that statement did was prove that IFP rates would spike in 2014. The next manipulation was to point to subsidies to prove a lower net cost for some people. That point is only fair for those people who get subsidies. For people who do not get subsidies, they still see their premiums spike. And as taxpayers, they are footing the bill for high premiums for people who get subsidies. Any way you look at it, it’s more money.

    Forbes corrected some of that inaccurate comparison by comparing IFP rates to IFP rates, but in doing so, they used the lowest cost plans in the market today, which is not what most people buy.

    [The above Health Net comparison] compared apples-to-apples benefits, and apples-to-apples market (IFP). And…proved that the rate spike is high.

    That is applicable to all those people who currently have an IFP plan. It will also be applicable to people on group plans when they see their rates spike. It just won’t be applicable to the uninsured who decide to buy now, particularly when they get a subsidy. However, the subsidy for high premiums is still applicable to all taxpayers. Bottom line —- prices spiked big time.

  8. Seems to make sense to me? The figures he gives are alarming at first glance, especially if one were to believe their premiums could essentially double, but it sounds like there is a lot of rate information that has yet to be released.

  9. I think a lot of people missed out on the fact that Anthem Blue Cross isn’t actually offering a PPO program in some of the biggest areas of the state like LA and Orange county.

    Lot of talk about apples and oranges, we’re comparing apples and orange seeds, at the moment. Unless I’m mistaken, CA hasn’t even released their entire rate book. Just select prices from select areas. Can we wait to see what all the rates in all the areas, for families and for individuals alike, before making final judgement?

  10. Nope, not paid to represent my own views, which are as a small business owner who currently covers 100% of the cost of my employee’s health insurance premiums for a good quality plan. You can call us employers chicken little but we are no strangers to basic economics.

  11. Naomi, Please provide a reference, or references to your statement that low cost health insurance plans “are the main cause of medical bankruptcy when an unexpected illness or injury strikes.”

    My understanding is that the most frequent cause of bankruptcy is lob loss, with or without illness, and regardless of health insurance status.

  12. “People who still cling to the idea that ACA will lower rates are daydreaming’

    only thing is, few people are actually saying this, chicken little.

    ok, you and probably Bob L are. He’s paid to say these kinds of things. Are you?

    What people HAVE been saying more often is that rates won’t necessarily be higher due to ACA alone.

    And that rate change over time is likely to be lower the broader the population covered, for a variety of reasons.

  13. I like Bob L’s commentary usually but this is basically rubbish.

    Comparing the cost of an underwritten plan on eHealthInsuarnace that is only available to HEALTHY people with a community rated one is intellectually dishonest. A much better comparison is with the EXISTING small business group in California which takes all comers–so long as they are employed in a group of 2-50

    For someone in their 20s our small business pays about $380 a month for a PPO with a $2k deductible and a $5k max out of pocket. That’s about $100 MORE than the comparable plan in the new Covered California exchange–presumably because the exchange wasn’t a price taker the way the small business pool has been.

    So Bob L is just choosing his data and is choosing the wrong data

  14. “The average premium for individual plans sold through EHealthInsurance in California was $177 per month last year. Covered California said the average premium for the three lowest Silver plans statewide will be $321 a month [+81% over two years], albeit for more comprehensive benefits.”

    What am I missing? If you want the best comparison for the current bare bones high-deductible plans, you use Bronze not Silver plans in the Exchange. Is this anything other than slight of hand?

  15. Econ 101. More coverage for more people = more $$. Either it comes from higher rates, higher taxes, or higher deficit spending. People who still cling to the idea that ACA will lower rates are daydreaming.

    The big unknown is what will employers do with the higher rates? Will they jettison their employees into the public exchanges? Will they require employees to fork over a higher share of costs? Will they choose cheaper plans that limit what doctors employees can see? Or will they absorb it by forfeiting new hires, employee raises, or pension benefits?

    Whatever course employers choose to defend against rate hikes, it will fly in the face of a key Obama promise during his campaign to pass ACA – “If you like your health insurance, you can keep it”

  16. You’re hitting the nail on the head…. And the healthcare hangover will continue to get worse as the newly covered actually use their benefits and encounter the deductibles, co-insurances, etc.

  17. There are a couple of points in Laszewski’s post that need to be clarified. First of all, many of the low-cost plans currently available in the small business and individual market are bare-bones plans that leave families and individuals burdened by huge medical bills and deductibles. They may seem attractive if all goes well, but are the main cause of medical bankruptcy when an unexpected illness or injury strikes. The plans chosen by California (13 out of 33 that applied)for the state exchange all offer much more robust coverage that includes no deductible for preventive and certain other primary care services. People may not “want” this level of coverage and, in fact, can pay a low fine of $95 in the first year for choosing to go without.
    Meanwhile, the price of the silver plan may average $316/mo, but a 21-year old pays $216/mo; with subsidies that can be as low as $44. California Public Radio has a very good explanation of these ranges and income levels here: http://blogs.kqed.org/stateofhealth/2013/05/23/californias-health-insurance-exchange-sets-plans-premiums-no-apparent-rate-shock/. Finally, as to the limited provider network, many insurers are including physicians and hospitals that not only charge less but also meet certain quality standards that make care both cost-effective and higher quality. If this turns out not to be the case in California’s exchange plans this would be unfortunate.

  18. Laszewski is exactly right that we are not comparing apples to apples, for several reasons. California’s exchange plans will have more extensive benefits than was previously common in the individual and small group markets, and the plans have kept their premiums low by restricting provider networks.

    But he misses another key reason premiums after implementation are not easily comparable to premiums before implementation: insurers will no longer be able to say no to sick people who want coverage. Healthy people who could qualify for coverage before might experience some sticker shock as sicker people join the insurance pool, and premiums increase. But the greater shock will be among sick people who are now able to get coverage at all.