Facts About Exchange Premiums

One of the most disturbing aspects of the political battle over implementation of the Affordable Care Act is the degree of misinformation being generated by officials in a number of states. Over the summer Insurance departments in Florida, Indiana, Ohio, and Georgia have selectively released information on the cost of coverage in the health insurance exchanges that are misleading at best. They have all claimed that under the ACA people purchasing individual health insurance through the exchanges will face significantly higher premiums. In fact all of their analysis either misstates actual premiums (Indiana), compares exchanges premiums to a fabricated plan that no one can actually purchase currently (Florida), or finds a rare unidentified person who faces higher premiums (Georgia).

The ACA requires that beginning in 2014 premiums in the individual market be based only on age, location with in a state, whether a person smokes, and the plan. Premiums can vary by age by no more than a factor of three, by tobacco use by no more than a factor of 1.5. Generally this means that compared to premiums in the current individual market younger individuals may pay more while older individuals and those currently priced out of the individual market will face lower premiums.

The law also carries a small stick and a large carrot to encourage people to purchase coverage. The stick is of course the individual mandate which requires that individuals either demonstrate they have insurance coverage or pay a tax penalty. That tax penalty in 2014 is the greater of $95 or one percent of family income which for the vast majority of Georgians will be less than one months premium.

The carrot is potentially much more important: the tax credit for purchasing coverage. That tax credit depends on income and the premiums in the exchange. Using the premiums submitted to the Georgia Insurance Commissioner I estimated the average subsidy for adults in Georgia:

Age Number of People Monthy Subsidy
19 to 26 69,888 $408
26 to 35 91,225 $316
35 to 50 123,016 $300
50 to 64 87,877 $285
Total 372,006 $263

The largest subsidies go the youngest cohort. Those who are likely to see a premium increase for the same coverage in the exchange. Their net premium for the same coverage is likely therefore to be significantly less than they currently pay.
For others the premiums themselves are likely to be lower even if they do not qualify for a subsidy. For example, in a letter the Atlanta Journal Constitution published August 19 the letter writer stated that she was a 62 year old single, self-employed female whose insurance policy had a $10,000 deductible. She reports her premium is going from $590 am month to $732 per month effective Oct. 1. She asks: “Can someone explain how Obamacare is helping me?”

When the exchange opens in October the letter writer can choose from at least 3 plans that will have a lower premium than she currently pays, and one plan that is slightly more than she now pays but over $100 less than she has been quoted by her current insurer. All of those plans have deductibles at least half of what she now enjoys. All of those plans would go into effect on January 1, 2014. If her income is at or below $43,000 and she purchases coverage in the exchange her premium will reduced by more than $200 a month.

The goal of the Affordable Care Act was to allow individuals access to the same health insurance coverage at the same prices as employees of large firms (and Congress for that matter). Based on the premiums filed with the Insurance Commissioner it has achieved that goal.
A recent survey by the found that most people who will benefit from the Affordable Care Act realize how it will affect them. Insurers, health care providers, and many consumers are hoping that enough accurate information can break through the wall of deliberate misinformation and reach those people this fall.

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