Ezra Klien on Obamacare's "rate shock"

6/01/2013 01:27:00 PM
Ezra Klien has a good critique of some of the claims being made about the recent revelations that California health insurance premiums will be much cheaper on the ACA exchanges than previously estimated. As an aside, I want to note that I'm not totally ready to credit the ACA for the slowdown in premium hikes, since it surely also reflects the general slowdown in healthcare spending nation-wide since the recession began. But, on the other hand, the California revelation should force everyone to admit, at the very least, that the ACA exchanges will work just fine--the foretold disaster of massive rate hikes and a lack of options on the exchanges is now clearly revealed to be a false prophecy.

Anyway, Klein basically offers rebuttal to people trying to distort the facts by comparing the cheapest advertised plans from the ancien régime before the ACA, to the prices offered on the new exchanges. There are multiple problems with that. First, the advertised prices from the ancien régime aren't actual prices--they were price floors, and after you fill out the application, they tell you how much more, based on your demographics including everything from income to health status, you have to pay on top of the price floor. By contrast, the new plans on the exchange are all community rated so that everyone pays the same price (with some allowance for small differences based on age, geographic region, family size, and smoking status). So basically, these critics are comparing a price floor below what anyone would actually pay, with an average price, and then exclaiming that the ACA is a total failure because the new average price will be much higher than an arbitrary figure below what anyone paid for insurance before the ACA.

Also, worth adding that these critics did not control for the type of plan--the ancien régime plans they found were very high deductible, very high copay plans, and the new plans on the exchanges they are comparing them to have much lower deductibles and lower copays. Thus, they are basically just saying that less insurance has a lower premium than more insurance. By that logic, the cheapest plan available under the ancien régime was an infinite deductible, 100% copay, which is now prohibited by the ACA--that means that health costs are infinitely higher now than before! Your costs will rise by literally INFINITY!

And yes, I will now start referring to the old pre-reform health insurance market as the ancien régime. It was a dysfunctional, confused system riddled with local and aristocratic privilege, that excluded the neediest individuals, and that prevented change through palace intrigue and insider deals. The similarity to pre-revolution France is striking.