Open enrollment for the Affordable Care Act begins on Sunday. And there’s no simple way to describe the health insurance options that people will find once they log on to healthcare.gov or one of the online marketplaces that 13 states run on their own.
Some people who already have coverage will discover their plans are getting a lot more expensive. Some will find insurance that costs nearly the same -- or even a little less.
Some first-time buyers will discover that even relatively minimalist plans, with high out-of-pocket costs, cost several thousand dollars a year. Others will find coverage that’s practically free.
This complexity is one reason the debate over the Affordable Care Act never seems to change much. The law’s foes can always find an anecdote or statistic to reinforce their prior view -- that “Obamacare” is a calamity. But even the law’s promoters have been known to cite facts that belie the law’s very real shortcomings.
What follows is an attempt to sketch out what the market for 2016 really looks like -- and what it means for individual consumers, many of whom may not fully understand their options.
1. Overall, premiums are rising more quickly this year.
This is now the third year that the Affordable Care Act’s marketplaces are open for business. The prices in year one were actually lower than many experts had predicted and, in year two, they rose only a tiny bit. This year is a different story. They are clearly rising more quickly, as analysts and insurance officials predicted this past spring.
There are a few reasons for the acceleration, but the most important is that many insurers initially set their premiums too low. They assumed the pool of beneficiaries would be larger and healthier than what they actually got. Now they are adjusting. Overall, in the 37 marketplaces served by healthcare.gov, premiums are rising by 7.5 percent, according to the Department of Health and Human Services.
By historical standards, that’s not a big jump. In the years before the Affordable Care Act, double-digit inflation was common. But it's still a larger increase than last year -- and larger than the increase for employer plans.
Another way to look at the market is to focus on silver plans, which are by far the most popular option and cover roughly 70 percent of the typical person’s medical bills. (Platinum covers 90 percent and gold covers 80 percent, while bronze covers 60 percent.) Overall, the cost of the cheapest silver plans are rising by 13 percent in the healthcare.gov markets, according to an analysis that the consulting firm Avalere released on Friday.
Analysts at the Henry J. Kaiser Family Foundation also took a look at silver-level plans, although they examined the second-cheapest plans at this level (which is what many analysts treat as the benchmark) and focused on major cities. They found an average increase of 10.1 percent, although it came down to 3.6 percent when they adjusted for the numbers of people who actually enrolled in each of those plans.
2. Overall trends don’t tell you much about what your options will be.
Trends in premiums are just one part of the story and they mask enormous variation -- starting with the regional kind. In Denver, for example, premiums for the second-cheapest plan are going up by 32.2 percent, according to the Kaiser analysis. The equivalent premiums in Indianapolis are actually going down by 9.4 percent.
Premiums also depend upon individual circumstance. The basis for nearly all the calculations that you read is an individual nonsmoker who is 40 years old. But premiums for 64-year-olds are much higher than those for 18-year-olds, since the law allows insurers to vary prices by age, up to a factor of three.
The law also permits insurers to slap a 50 percent surcharge on smokers. By law, the insurers must also offer access to all smoking cessation programs -- although many plans aren’t covering all federally approved programs, as they are supposed to do.
3. Focusing on year-to-year increases leaves out some pretty important context.
Premiums in Billings, Montana, are way up, according to Kaiser’s analysis, while the premiums in Hartford, Connecticut, are coming down a little bit. But both will end up at $322 a month, which works out to $3,864 a year. To get some perspective, the average annual premium for insurance from an employer is now more than $6,000.
It's hard to compare the two directly. Among other things, employer policies usually have more generous coverage and broader doctor networks than silver plans do. But premiums in the marketplace hardly seem out of line with the cost of insurance in the rest of the private sector.
That doesn’t mean somebody paying $3,000 a year for an individual insurance policy will feel like it's a bargain. Most people have no idea how much employer-provided insurance really costs, because they don’t know how much of their paychecks go to premiums. People who were buying individual insurance policies may be accustomed to the prices they saw before the Affordable Care Act. Plans could be dirt-cheap back then, because they frequently left out key benefits and insurers could sell only to healthy people at little risk of running up big medical bills.
4. You can’t talk about premiums without talking about tax credits.
The world of insurance before the Affordable Care Act also didn’t offer tax credits, designed very specifically to offset the higher prices that the new regulations have imposed on the market. The tax credits are a very big deal, because they are available to people making as much as four times the poverty line -- or $97,000 a year for a family of four.
The tax credits vary by income, so they are worth much less for people in the higher reaches of the middle class. But the vast majority of people buying through the marketplaces get at least some assistance and, according to HHS, eight in 10 customers returning to the marketplaces will be able to find subsidized coverage for less than $100 a month, or $1,200 a year.
By design, these tax credits also insulate consumers from the effects of year-to-year increases. When Kaiser’s analysts factored in those tax credits, average premium change from 2015 to 2016 basically came down to zero. (It was -0.2 percent, if you want to be precise.)
5. Saving money can require switching plans, which is easy for some and difficult for others.
Here’s something else the calculations about overall trends mask: People who have coverage already may have to switch plans in order to avoid steep price increases. That’s not easy for people with chronic illness, since changing plans means changing doctor network and drug formularies.
In theory, federal and state regulators make sure all plans have “adequate” networks and cover all essential drugs. In practice? The regulators don’t always do such a great job -- and some people may find switching plans to be a real hardship.
Switching plans isn’t always such a big deal, of course. And some people who change plans will end up saving money because this year’s premiums end up lower than last year’s.
“While premiums have increased dramatically in many markets, the vast majority of exchange enrollees receive premium subsidies that can protect them from these increased costs,” Caroline Pearson, senior vice president at Avalere, said on Friday. “However, most consumers will need to return to the exchange to shop and may need to select a new plan to avoid higher premiums.”
6. Out-of-pocket costs matter, too.
Deductibles and co-payments in health insurance have been rising for a while. The Affordable Care Act actually puts a hard limit on out-of-pocket costs. It also provides extra assistance for those expenses to people with incomes below 250 percent of the poverty line, or $60,625 for a family of four. (As the blogger Andrew Sprung has pointed out, the help is particularly important for lower-income people who might otherwise have high out-of-pocket costs from prescription drugs.)
HHS is trying to spread the word about this assistance, which is available only to people who choose silver plans. The department has also added a new feature to healthcare.gov. The online tool provides rough estimates of yearly out-of-pocket spending for each plan, based on whether consumers think they will be light, medium or heavy users of medical care.
But not all consumers will take advantage of these tools or make decisions that pay off in the long run. Premiums and cost-sharing tend to have an inverse relationship: the less you pay up front, the more you will owe in co-pays and deductibles. Some people are bound to pick skimpier plans, because of the alluringly low premiums, only to struggle with huge out-of-pocket costs because they unexpectedly got sick or injured. They’re going to gamble on good health -- and lose.
Others will pick plans that come with high cost-sharing because they feel the more generous plans, with lower co-pays and deductibles, are simply too expensive. They’re going to face big medical bills if they get sick -- maybe not enough to ruin them, but certainly enough to cause real financial strain.