The Exchange

Obamacare Is Shaping Up as a Good Deal for Consumers

The Exchange

It might still turn out to be too complex, disruptive or dependent on government coercion. But so far, Obamacare is looking like a good deal for people who enroll.

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With the first phase of President Obama’s sweeping health care reforms set to go into effect October 1, insurance companies are beginning to formulate and publish the premiums they’ll charge people who sign up for coverage through one of the statewide exchanges established by the law. In most states that have published those rates, the premiums are comparable to what group plans charge, and in some cases even a bit lower.

The nonprofit Kaiser Family Foundation has assembled rate information for 17 states, including New York, California, Ohio and Virginia, plus the District of Columbia. For the most part, the Obamacare rates track premiums insurers tend to charge in small-group plans offered by medium-sized businesses. If such rates stick, it would be a mark of success for the controversial program, which was intended to provide reasonably priced insurance for people who can’t get affordable coverage through an employer, family member or other source.

In New York City, for instance, the cheapest “silver” plan, providing a middle tier of benefits, would cost a 40-year-old person $359 per month. The cheapest cost for a similar plan would be $214 in Baltimore, $256 in Omaha and $281 in Seattle. That’s without any federal aid.

Generous subsidies

The Patient Protection and Affordable Care Act, as Obamacare is officially known, offers generous subsidies for lower-income workers to help offset the cost of insurance and encourage them to enroll. For a family of four living in New York City (including two 40-year-old parents and two kids) with a total income of $60,000, the total cost of a silver plan would be around $1,112 per month. But a $702 tax credit will lower the family’s out-of-pocket cost to $409 per month, which is the cap on per-family costs in most cities. Families with lower incomes qualify for bigger credits that lower their out-of-pocket costs even more.

Since these are real rates insurance companies expect to charge real consumers for coverage in 2014, they provide much better insights into how well Obamacare is likely to work than the fiery rhetoric that's surrounded the law since it passed in 2010. “It shows that insurers believe enrollment will be reasonable, and it won’t just be sick people who enroll,” says Gary Claxton, one of the Kaiser researchers who gathered and analyzed the insurance data. “It’s really good news that these rates aren’t coming in twice as high as what the average person pays for insurance now.”

Cost estimates based on data from the Congressional Budget Office have suggested the average premium for a 40-year-old purchasing a silver plan would be about $320 per month, without subsidies. But Kaiser found that, in 15 of the 18 regions it examined, at least one insurance company offers a cheaper plan for the same tier of coverage. “While premiums will vary significantly across the country,” Kaiser says, “they are generally lower than expected.”

That doesn’t mean premiums will remain low. Since Obamacare is basically a huge, unprecedented experiment, insurance companies could be overestimating the number of people who will enroll. If they end up with fewer new customers than expected, premiums would probably go up. The same thing would happen if patients buying coverage through exchanges turn out to be sicker than expected, which would raise costs that have to be borne by everybody in the system.

What could go wrong

Plenty of other things could go wrong. Americans could balk at the individual mandate, which requires them to buy coverage or pay a penalty; if too many people opt for the penalty, it could undermine the economics of Obamacare and intensify the political backlash to the law. Beyond that, federal subsidies could turn out to be unaffordable if Washington continues drowning in debt. Key cost-containment efforts could fail. Republicans, generally opposed to the law, could win the White House in 2016 and roll back the whole program.

Of course, Obamacare could turn out to be less disruptive and more effective than expected, too — which wouldn’t be all that hard, given the economic catastrophe many opponents of the law have predicted will be its inevitable outcome. By that standard, if Obamacare does no harm and a little good, it will arguably qualify as a success. Even more so if costs go down and benefits improve over time.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.

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