Obamacare’s $95 Bet on Millennials Buying Insurance
Policy + Politics

Obamacare’s $95 Bet on Millennials Buying Insurance


Obamacare either looks like a deal or a rip-off, depending on which state you call home – and on which political party occupies the governor’s mansion.

As state regulators release their 2014 monthly premium rates, it becomes clear how a combination of political motives and existing state regulations have distorted whether Obamacare can deliver the promised savings.

Just 17 states have their own Obamacare exchanges for people to buy coverage – 13 of them controlled by Democratic governors. The rest of the country will default to the federal exchange or partnership-based exchanges. Americans who do not receive coverage through their jobs can buy it through the exchanges. Democrats have skillfully used math to portray the exchanges as reducing insurance costs, while Republican governors – in line with their colleagues on Capitol Hill – have manipulated numbers to claim that Obamacare will be a financial disaster.

“It’s like unraveling an onion – many layers and many tearful moments,” summarized Sally Pipes, president and CEO of the conservative Pacific Research Institute, when asked about the competing estimates.

Millions of Americans are expected to sign up for insurance coverage beginning in October, or face a slight income tax penalty. Here’s the cost-savings gist of Obamacare: If 2.7 million healthy millennials buy insurance next year, their premiums will reduce the costs for older Americans with greater medical needs. To encourage people to purchase coverage, the federal government will provide subsidies based on income.

In New York, Democratic Gov. Andrew Cuomo announced that rates, on “average,” had tumbled by 53 percent. The online exchanges being set up by the 2010 Affordable Care Act had fulfilled the promise of the law’s name. The monthly premium on a mid-tier “silver” plan was priced as low as $319.47.

“So folks’ premiums in the individual market will drop by 50 percent,” Obama proudly noted of the Empire State in a speech two weeks ago. “You’ll have the security of knowing that everything you’ve worked hard for is no longer one illness away from being wiped out.”

The price largely fell because insurance companies charge older and younger residents the same rates under New York State law. This cross subsidy inflated the price of insurance for healthy individuals – and not surprisingly, just 17,000 New Yorkers currently have individual coverage.

In Ohio, Republican Lt. Gov. Mary Taylor blasted Obamacare last week for raising monthly premiums by 41 percent. Her figures estimated that the monthly premium average would increase from $236.29 to $332.58 this year.

The actual rates are curiously close to premiums in New York, where the cost-of-living is notoriously more expensive than Ohio.

Lt. Gov. Taylor actually hinted at a major reason that premiums will increase in the Buckeye State: People can now buy insurance that features better coverage than what is currently offered.

“Ohio has traditionally had a more competitive health insurance market than other states with a wider range of prices and choices – from simple, high-deductible coverage to comprehensive, full service plans,” she said in prepared remarks.

In other words, Taylor is comparing apples to oranges, and possibly bananas and kumquats. Most states do not provide the same scope of maternity or prescription drug benefits as Obamacare does. In some cases, the out-of-pocket deductible is so high that premiums are artificially cheap.

“The reasons you could find policies cheaper are because they only covered healthy people,” said Gary Claxton, vice president at the Kaiser Family Foundation.

More importantly, these estimates do not factor in the federal subsidies in the form of tax credits, which would be available to roughly 80 percent of Ohioans in need of insurance. According to a Kaiser Family Foundation calculator, a 27-year old nonsmoker earning $30,000 would see his monthly premiums reduced by another $54.

By excluding the impact of the subsidies – which also happened in New York – Taylor used her analysis to attack Obamacare, said Brian Rothenberg, executive director of left-leaning ProgressOhio.

“It’s more important for her to score points with the Tea Party than [it is to] educate uninsured Ohioans about the law,” he told The Fiscal Times. “She’s using fear as a political tool.”

The Department of Health and Human Services released an issue brief last month examining silver-tier premiums in eight other states and the District of Columbia that have released prices. With the exception of Vermont at $400 a month, all were well below an HHS projection that premiums would average $392.

The report examined the lowest cost monthly premiums issued by the states: $331 in California; $305 in Colorado; $226 in New Mexico; $275 in Oregon; $358 in Rhode Island; $293 in Virginia; and $349 in Washington.

Compared to what the Obama administration projected, then, the lowest priced plans being sold inside these states is, on average, 18 percent cheaper. This, once again, is a unique kind of comparison based on expectations, instead of the actual current rates as used by the New York and Ohio reports.

The divide on Obamacare implementation goes well beyond price. Just as California and Colorado work to enroll customers, a state such as Missouri refuses to cooperate with federal officials in offering coverage, The New York Times noted Saturday. A 2012 state ballot measure prohibits Missouri from providing “assistance or resources of any kind” to the exchanges.

But one of the core economic assumptions of Obamacare is that the uninsured will now choose to pony up a few thousand dollars a year, rather than forgo coverage. This means that younger people are really choosing between a $95 tax penalty in 2015 and spending roughly $2,000 in premiums next year, suggested Pipes at the conservative Pacific Research Institute.

The state analyses also simplify the matter in a way that will not be apparent to consumers who must choose among different plans. Not only must they pick among competing providers – they can choose high-end platinum, gold, silver, or low-end bronze plans.

“People won’t know exactly what they have,” Pipes said. “They’re not going to know what they need. And I think it’s going to be very confusing.”