Average Obamacare premiums are lower than projected: why yours may not be

Nearly three and a half years after the passage of the nation’s sweeping health-care overhaul, Obamacare is set to go online next Tuesday with new, federally mandated health insurance exchanges – a key provision of the 2010 Affordable Care Act. 

Uninsured individuals nationwide must either find an affordable plan to purchase by the end of the year, or pay a tax penalty.

That's why the Obama administration's release, on Wednesday, of a comprehensive summary of the average health-care premiums that private insurance companies will offer next week on these exchanges, or state “health insurance marketplaces,” drew immediate scrutiny.

According to the summary released by the US Department of Health and Human Services (HHS), the average monthly premium for a mid-level health plan on these exchanges will be $328 – about 16 percent below projections.

But this average premium number can be very misleading, since it is a weighted average for the entire country, experts say, based on some of the cheaper plans offered by the exchanges. Indeed, the rates provided by the summary give a dizzying array of premiums, varying widely according to age, region, and family size – as well as the kind of plan purchased.

The federal government will support or fully run the private insurance marketplaces of 36 states, with 11 other states currently choosing to run their own. For those exchanges run by the federal government, there are an average of 53 plans and premiums per state to choose from, and an average of 8 carriers providing these plans, and competing for enrollees. Some areas, however, will have as few as six plans, and some will only have a single carrier to choose from – another significant regional variance.

In Minnesota, the average monthly cost for the cheapest plan is $144, while a similar plan in Alaska costs an average of $385, according to the HHS summary. A mid-level plan in Arizona, by contrast, costs an average of $252 a month, while a similar plan in Wyoming costs $516.

And Obamacare provides for four different levels of plans, organized into platinum, gold, silver, or bronze – with an additional, bottom-basement “catastrophic plan” added for young adults and some others. The more expensive “platinum” plans will cover 90 percent of health-care costs, while the least expensive “bronze” plans will cover 60 percent of costs, which means a consumer choosing these plans must pay out-of-pocket for the remaining 40 percent.

But according to the Affordable Care Act, these out-of-pocket costs would be capped at $6,350 for individual policies and $12,700 for families. These caps were delayed until 2015 by the Department of Labor in February, however, which could put a strain on those who purchase these plans and incur medical bills next year.

There is one more significant wrinkle to these numbers, however: The federal government will give tax credits for low income buyers who do not qualify for Medicare or Medicaid. Of the estimated 41.3 uninsured Americans who must purchase coverage by Jan. 1, 2014, 18.6 million of these will be eligible to receive TAX credits, and about half of them will see monthly premiums less than $100, according to HHS.

An average 27-year old making $25,000 a year in Texas, for example, could pay as little as $83 a month for the lowest cost plan. A family of four making $50,000 a year in Indiana would only have to pay $46 a month for the lowest cost plan, and a similar family in Alaska wouldn’t have to pay anything. Tax credits are available to individuals and families who make up to 4 times the Federal Poverty Level (FPL).

But some experts see potential problems with these numbers. The individual market for health insurance is notoriously difficult to price, because only those who become sick tended to pay for this insurance in the past. Obamacare makes it illegal for carriers to reject a customer who has pre-existing conditions.

“I think there’s a lot of confusion out there, and I think the problem is, these carriers don’t know what their pool is going to be, so it’s hard for them to really price it at this point,” says Mark Isenberg, a partner with Zotec Partners, a nation-wide medical billing company headquartered in Carmel, Ind. “Because if you have all these different levels, and I’m a healthy 30-year-old, and I know it’s a yearly plan, I’m going to opt for the cheapest plan.

“But if I’m really sick and I know I’m going to be really sick, I’m going to opt for the entire plan,” Mr. Isenberg continues. “So you’re going to have a lot of top-heavy risk pools associated with it, so I don’t think their actuaries have a firm handle on what their actual costs are going to be on these plans.”

Yet the Obama administration projects that 7 million Americans will join the health-care rolls in 2014 – including 2.7 million young and healthy consumers who are essential to the Obamacare logic: The young and healthy are needed to offset the high costs of sicker members.

Hence the tax penalties or “shared responsibility fee” for those who do not join. The health-care law will cost uninsured individuals who do not purchase insurance on the exchanges $95 per person per year in 2014, or 1 percent of personal income. This will jump to $325, or 2 percent of personal income in 2015, and $695 or 2.5 percent in 2016.

“My expectation is in 2015 and 2016, we’ll see a greater number of people moving to the exchanges,” says David Oscar, communications chair of the New Jersey Association of Health Underwriters. He doesn’t believe very many of the young and healthy will opt to buy insurance from these exchanges, especially now when paying the penalties is so much cheaper than buying insurance.

Yet the 11 million people eligible to receive subsidies, says Mr. Oscar, who manages the plans of about 2,000 small- and mid-sized businesses, as well as about 500 individuals, will probably visit the online marketplaces and purchase coverage.

“The small business owner, the mom and pop shop that only shows $50,000 of income – they’re going to go to the individual plans [on the exchanges] because, from what it looks like, the individual plans are, on the surface, better looking than the current individual plans,” he adds.