Insurance Costs Increase. Not a Big Surprise.
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Despite all the uncertainties of Obamacare, one fact has remained - insurance will become more expensive.

The NY Times reports that insurers are seeking double-digit rate increases in a number of markets - in California for instance, some 68,000 people will see an average increase of 18.8% in the individual market. In Connecticut, a state that will have one of the highest bars for participation in their insurance exchange, a slew of individual market products have already seen increases of about 14%, affecting over 20,000 people.

Under Obamacare, HHS requires states to conduct reviews of proposed health insurance premium increases. For states without an "effective review process" HHS will conduct the reviews themselves. The basic idea is that exposing insurers to public, and government scrutiny will help keep down insurance costs for consumers - there is reason to doubt that this will pan out as well as hoped.  

For starters, the rate increases are often justified by increases in costs - in Connecticut, 20% of the 14% jump was due to administrative expenses; almost 70 percent was due to increases in actual medical costs (the largest of which was "professional services" that includes payments to doctors). Some will doubtlessly argue (and the NYT article addresses this) that this still means that states should simply have the power to deny or modify rate increases - as New York has just done (some 36 other states have the power to do so as well). The problem with this line of logic is that it doesn't address the underlying growth in costs - health care continues to become more expensive, and Obamacare doesn't help much by requiring more generous benefits and banning the ability to base premiums on health status.

Additionally, insurers also have other options for addressing cost growth - rather than raise premiums they can simply increase cost-sharing (such as co-insurance or deductibles) to make consumers foot more of the cost of their health care. This means that rather blunt policy tools like denying rate increases are unlikely to work and would instead make the cost hikes less transparent.

Instead (though it's too early to tell now), states that tend to have more restrictive policies and tendencies (such as denying rate increases or requiring more generous benefits packages) may very well see insurers exiting their markets as they decide that it isn't worthwhile. As states establish their health insurance exchanges this year, it will be wise to keep an eye out for insurers refusing to offer policies in states with higher bars for participation.

So while the ultimate reason for rising insurance costs may be uncertain - more generous coverage, more administrative costs, or higher health care costs - the end result is still the same: under Obamacare consumers will be paying more for their insurance.

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Rhetoric and Reality—The Obamacare Evaluation Project: Cost
by Paul Howard, Yevgeniy Feyman, March 2013


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