The High Cost of Cheap Health Insurance

The High Cost of Cheap Health Insurance

...... Here’s what the Obama administration wants
you to know about health insurance premiums under Obamacare: On
average, people who selected subsidized insurance plans through the
federally-run insurance exchange paid $82 a month, out of their own
pockets, for health insurance. People who selected "silver" health
plans—the most popular tier of coverage offered in the
exchange—paid less: $69 per month, on average. Almost 70 percent of
the people who signed up for subsidized plans through the federal
exchanges are paying less than $100.

Those are the average premium prices that the Obama
administration highlights in a press release touting a
new government report on Obamacare and health premiums.


But there are several things to remember about those
figures.


One is that they’re incomplete. The data released by the
administration doesn’t account for premiums in the 14 states that
ran their own exchanges this year.


Another is that those averages conceal an awful lot of
variation. Even with the federally run exchange covering the
majority of states, Obamacare varies quite a bit from state to
state. Out of pocket insurance costs in Mississippi averaged about
$23 a month, but came in at $148 in New Jersey. About a third of
people buying subsidized coverage through the federal marketplace
were paying more than $100. And the report focuses on the majority
of participating individuals who bought subsidized coverage: 14
percent of people who
selected plans in the federal exchange through the end of open
enrollment got no tax credits at all.


That’s another thing to remember: The administration’s premium
averages are based on out-of-pocket costs after the law’s tax
credits and subsidies are factored in. Those subsidies end up
offsetting quite a bit of the cost of insurance under Obamacare.
But if you strip away the subsidies, individual market health
insurance has, on average, become significantly more expensive in
the wake of Obamacare, according to a newly published analysis by
the Manhattan Institute.


Relying on a 3,137 county comparison of the five cheapest
individual plans available prior to Obamacare with the five
cheapest plans through the exchanges, the study by health policy
fellow Yevgeniy Feyman found that, on average, premiums were up 49
percent under Obamacare. Again, that’s an average, and it masks
some variation—in New York, which had unusually restrictive, badly
designed health insurance market rules prior to Obamacare, premiums
are actually down quite a bit—but it indicates that the overall
trend for unsubsidized premiums is up.


The difference, then, is being made up by federal subsidies.
According to the administration’s report, those subsidies are
carrying 76 percent of the total cost of subsidized insurance plans
selected in the federal exchange. The out-of-pocket average is $82.
But the actual average premium price, without subsidies, is
$346.


To the extent that insurance is relatively cheap, it’s because
taxpayers are footing a big chunk of the bill. Obamacare didn’t
reduce the price of insurance; if anything it raised it—and then
used tax revenues to cover the difference.


That’s frequently how subsidies work—they lower the
out-of-pocket price tag, but, by separating consumers from
meaningful price signals, they also distort markets in ways that
drive up the overall cost, leaving the public to pick up the
ever-growing tab.


There’s already evidence that this is happening with Obamacare.
As the Los Angeles Times
reports today, "while the generous subsidies helped consumers,
they also risk inflating the new health law’s price tag in its
first year." If premiums and subsidy levels in the state-run
exchanges that were left out of the report generally match up with
the federal government, then the Times estimates that the
total for subsidies this year could run as high as $16.5
billion—significantly more than the roughly $10 billion estimated
by the Congressional Budget Office.


The Obama administration wants everyone to know how cheap
insurance is under Obamacare. But they don’t really want people to
think about how expensive it is to keep it that way.