The Coming ObamaCare Premium Storm

There is a storm coming on the horizon. Your insurance premiums, that seem expensive but tolerable today, are soon going to explode. Start saving now because in two years you’re going to need the money.

That’s the message being preached now by two well-respected authorities on the future of ObamaCare insurance premiums. I first wrote about this in September (Train Wreck Still Coming) when Robert Laszewski, insurance industry analyst, discussed the 2015 premium increases. He pointed out then that the news reports of lower premiums on the Exchanges were misleading because many insurance companies looking to increase market share were artificially lowering their premiums.

The insurance bailout provisions of reinsurance, risk adjustment, and risk corridors (the 3 Rs) were giving insurance companies the support to offer premiums at lower than cost pricing in order to increase market share. These companies need not fear losing money because the 3 Rs would bail them out if they did. Laszewski said then we would have to wait until 2017, when the 3 Rs expire, to find out the real ObamaCare insurance premium rates. (More on 3 Rs – Insurance Bailout Has Begun)

2017 Rate Predictions

Now we have some idea of what those premium rates in 2017 will be. Stephen T. Parente, professor of health finance and associate dean of the Carlson School of Management at The University of Minnesota, has researched this important issue. He writes in The Wall Street Journal that the storm will hit us on New Year’s Day, 2017.

Parente says the storm will come about for several reasons:

  • Expiration of the risk corridors of the law
  • Expiration of the reinsurance of the law
  • Expiration of the exemptions that allowed non-compliant plans to be sold (a unilateral change to the law made by President Obama)

 

Parente, and his colleague Michael Ramlet, released a study estimating how premiums will react once these three changes happen, using HHS enrollment data. They estimate that premiums – especially for the cheapest plans – will increase at a much faster rate after 2016. Here are their estimates:

  • Bronze plans could increase 45 % for families, from about $9,000 to $13,000.
  • Bronze plans could increase 96 % for individuals, from about $2000 to $4,000.
  • Other plans – silver, gold, and platinum – will see smaller, but still substantial increases.
  • Premiums for cheaper plans will increase at a faster rate because their deductibles will likely decrease to meet ACA regulations in 2016.
  • After the large increases of 2017, premiums will rise at the level they do now, a few percentage points every year – yet faster than they did in the years before ObamaCare.
  • Federal subsidies on the Exchange will not be able to keep up with the increases.

 

Difficult Choices

Many people will be unable to afford these premium increases for the Affordable Care Act. That will leave consumers with difficult choices to make. Many will choose to go uninsured and risk paying the Individual Mandate Tax, which will be $695 minimum or 2.5 % of income up to a $2,085 maximum in 2016. After 2016 the tax goes up by a cost of living adjustment. This is still far cheaper than the price of the insurance premiums.

Parente says the result of these choices will be a 13 % contraction in 2017 and roughly 1 % contraction about every year thereafter for the next decade.  Their study predicts the number of uninsured will rise to 40 million within the next decade – a number about 10 % higher than it is today.

In other words, the law known as The Affordable Care Act, intended to decrease the number of uninsured Americans by providing more of them affordable healthcare insurance, will result in unaffordable insurance and more Americans uninsured than we have today. That really is a storm on the horizon!

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