Experts: Obamacare Exchanges Not Decreasing Insurance Rates

Despite Obama’s claims, exchanges not creating downward pressure on health insurance rates

July 19, 2013

Healthcare experts questioned President Barack Obama’s claim Thursday that Obamacare-mandated health insurance exchanges will actually drive down insurance costs, contending that he is making bad comparisons and that costs are increasing.

Obama cited four state-run exchanges—those run by California, Oregon, Washington, and New York—as examples of what the exchanges will do.

"Just yesterday state officials in New York announced that average premiums for consumers who buy insurance in their new marketplace will be at least 50 percent lower next year than they are today," Obama said Thursday. "Think about it. Fifty percent lower."

Experts painted a far more complicated picture of the effect that the exchanges are having on the price of health insurance.

"New York is one of a handful of states where Obamacare is an improvement on the status quo," said Ed Haislmaier, a healthcare expert at the Heritage Foundation.

New York reformed their healthcare system two decades ago in a way that drove up insurance premiums for the individual market, said Merrill Matthews, a scholar at the Institute for Policy Innovation. The state prohibited insurance companies from denying coverage and required them to offer the same premiums to everyone, what is called "community rating."

However, the state did not require everyone to buy insurance, causing the pool of those buying insurance to shrink and the cost of insurance to skyrocket to among the highest in the nation, what Matthews called a "death spiral."

"It might actually make it a little less irrational," Matthews said about Obamacare’s effect on New York’s system.

The effect of the exchanges in California presents another complicated case, experts said.

California released the insurance plans being sold on their exchange in May and touted the exchange’s success in driving down costs.

"The rates submitted to Covered California for the 2014 individual market ranged from 2 percent above to 29 percent below the 2013 average premium for small employer plans in California’s most populous regions," Covered California’s statement said.

These comparisons are inapt, experts said.

"First of all, you have to compare apples and apples," said Sally Pipes, president of the San Francisco-based Pacific Research Institute.

The price of an individual plan is often better than that of a small group plan, said Haislmaier. Comparing the two creates the false illusion that the exchanges are dropping prices.

Covered California conceded in the statement that a direct comparison of plans is difficult but argued that the comparison is justified. "Both the small employer market and Covered California are competitive markets and offer guaranteed issue," they said.

However, Pipes argued that the actual price of insurance has risen dramatically under the new insurance regime. The price of silver-level health insurance plans (the second lowest on the four-tiered rating system) for a 40-year-old man has risen 149 percent, from $94 per month to $234 per month, Pipes said.

"There’s no question it’s more expensive," she said.

Additionally, it is unclear if any price reductions accomplished by Covered California are due to competition or the dictates of those running the exchanges.

"Covered California is an ‘active purchaser’ in the market, which means it negotiates directly with insurers," said Covered California spokeswoman Anne Gonzales. "Health insurance companies submitted bids and were required to offer essential health benefits and a balance of access and affordability. We then entered into a lengthy negotiation process to get the best provider networks and premiums."

Gonzales did not return a request to further clarify the nature of these negotiations.

Oregon and Washington officials defended the downward pressure their exchanges are putting on prices. One insurer in Oregon requested to lower their price after the rates from other insurers were made public, an Oregon official noted, while a Washington official said that state exchange officials have been "pleasantly surprised" at the rates.

While "they’re still under review, we know that in some cases there will be lower costs for consumers (even while the level of coverage is increasing)," the Washington official wrote in an email.

Matthews said Washington reformed its insurance system in a way similar to New York, driving up its premiums for insurance plans.

All four of these states are running their own exchanges—a step that only 16 states and the District of Columbia took after Congress passed the Affordable Care Act.

The federal government is running the other 34 state-based exchanges. It is unclear how insurance prices will fare on these federally run marketplaces.

The Department of Health and Human Services released a report yesterday contending that the insurance rates in the marketplaces are coming in 20 percent lower than the CBO predicted, although it does not detail how this compares to pre-Obamacare prices. This report is based on 11 states.

When asked for comment, HHS pointed to this report and noted that the release of rates will vary by state. The official contended that the exchanges would increase choice and competition by allowing better comparisons.

However, some states are reporting a different trajectory. Indiana’s state insurance department announced that the cost for an individual health care insurance plan would rise 72 percent while the cost for a group plan will rise 8 percent. The federal government is running Indiana’s exchange.

The House Energy and Commerce Committee released a report in May predicting that insurance rates would spike for both individual and small group plans.

"Sadly, the situation in Indiana mirrors our analysis of the looming rate shock—which revealed many Americans will endure premium spikes of nearly $2,000 and the rate shock for some could eclipse 400 percent," said committee chairman Fred Upton (R., Mich.). "Folks deserve better."

Published under: Obamacare