Big rises in premiums will cause most pain away from the exchanges
FANS of the Affordable Care Act, Barack Obama’s health-care law, should spend November biting their nails. The first reason is the presidential election: Republicans want to repeal the law. The second is that the three-month window when Americans can buy insurance, if they are not already covered through their employer, opens on November 1st. Many will shop on government-run marketplaces, or “exchanges”. On October 24th the health department confirmed that buyers will pay a lot more this year. How they react will determine the future of the law—and not just because it may swing their votes.
The average benchmark “silver”—ie, middling—plan sold on the exchange will cost 22% more for 2017. This steep increase partly reflects the fact that insurers have been charging far too little. Many were caught out by the sickliness of exchange customers, and have made big losses as a result. Some, like Aetna, have left most exchanges (in five states, only one insurer now remains). But despite this turmoil, insurance for 2017 will cost roughly what the Congressional Budget Office predicted it would when the law passed.
Federal subsidies, offered to those earning less than 400% of the poverty line (which works out as $47,520 for individuals), will shield many buyers from the full effect of higher prices. Of the 12m people who bought insurance for 2016 on the exchanges, 10m received subsidies. Obamacare caps their costs. So long as some insurers stick around—which they should, as price rises return them to profit—federal cash will shore up this part of the market.
That is the good news, as far as the law is concerned. The bad news is that 9m people buy coverage directly from insurers, without going through the exchanges or receiving any subsidies (see chart). And these folk, whose premiums help to finance care for everyone, on or off the exchanges, must also pay more. If the healthiest among them decide to forgo insurance, premiums will rise further next year. The only thing stopping them from doing so is a fine for going without insurance, which is small compared with the cost of coverage.
If healthy people stop buying, insurance will become prohibitively expensive for those who do not qualify for subsidies. Obamacare has already raised prices for many in this group. By banning insurers from turning away customers with pre-existing health conditions, for example, it pushed up premiums. In 2015 households earning $70,000 or more spent 75% more on insurance, on average, than in 2010, despite the fact that coverage rose only slightly in this income bracket. That is before rising deductibles are accounted for.
This helps to explain the ferocity of opposition to Obamacare. In most states, insurers will now have to tell all their customers about price rises or discontinued coverage by November 1st, just days before voters go to the polls. Expect disciplined Republicans in tight House and Senate races to talk about little else between now and November 8th.
This article appeared in the United States section of the print edition under the headline "Crunch time"
