Insurance premiums usually go up year to year. Sometimes they go up by a little, sometimes they go up by a lot. They almost never go down—except that this year they are, at least in some cities, and it's because of Obamacare.
That's the conclusion of a new study from the Kaiser Family Foundation. To produce the report, researchers looked at insurance prices in 16 major cities, comparing the new rates for 2015 to the rates that people have been paying in 2014. The researchers didn't try to produce a comprehensive survey of all plans available in these marketplaces. Rather, they focused on three specific ones, including the second-cheapest "silver" plans that are more or less the standard level of coverage around which the law is built. Silver plans are supposed to cover 70 percent of the typical person's medical needs—and, in each market, it's the price of that second-cheapest silver plan that determines how much financial assistance people can get when they buy coverage.
As always, there was variation. Kaiser found higher prices in some cities, topping out at an 8.7 percent increase for the Nashville market. But just two other cities are seeing increases that anywhere close to that. All the other cities have either modest increases, no change, or decreases that ranged from modest to significant. In one city, Seattle, the price of the benchmark plan is falling by 9.8 percent. In two others, Providence and Denver, the decline reaches double digits.
And the overall average in these markets? Negative zero-point-eight percent—yes, a slight decline.
To appreciate what that means, consider what the market for buying insurance on your own (rather than through an employer) was like before Obamacare came along. Between 2008 and 2010, premiums went up every year and they did so by at least 10 percent, according to an analysis that MIT economist Jonathan Gruber did for the Commonwealth Fund. And that was for insurance that might be sold only to healthy people or that had benefits far skimpier than the ones required by the Affordable Care Act. “There is variation, but so far, premium increases in year two of the Affordable Care Act are generally modest,” Drew Altman, Kaiser’s President and CEO, said in a press release. “Double digit premium increases in this market were not uncommon in the past.”
Larry Levitt, Kaiser's senior vice president and a co-author of the report, was a bit more colorful on twitter:
Competition driving ACA benchmark premiums down in many places. In health care, it's like defying the law of physics. http://t.co/OJPrYIGOzG
— Larry Levitt (@larry_levitt) September 5, 2014Keep in mind that, last spring, critics of the Affordable Care Act predicted that premiums would skyrocket this year—and many of the law's defenders feared that those critics were right. The theory was straightforward and plausible: Too many older and sicker people had signed up for coverage through the new marketplaces, without enough younger and healthier people to balance them out. Insurers, saddled with more medical bills than they had expected to pay out, would jack up their rates.
Several months later, it would appear those predictions were wrong. Maybe insurers anticipated the mix of enrollees pretty well. Maybe they are deliberately underbidding, even now, just to gobble up market share. Maybe some combination of competition and regulation is forcing them to keep down prices. It could be any of these factors or some combination of them. Whatever the reason, it's good news for now.
The clearest winner in all of this, by the way, isn’t necessarily the people buying insurance. Those tax subsidies in the Obamacare marketplaces effectively discount the price of insurance for most people buying it, insulating them from price increases. But the subsidies aren't free. They come from the government, which means they come from the taxpayers. If premiums aren't as high as expected, then the taxpayers are getting some relief.
Are there caveats? Yes and they are important. The researchers picked 16 cities in states (plus the District of Columbia) where they could get final or near-final information on prices for next year. It's possible that a more comprehensive review including the rest of the country would turn up different numbers. In addition, premiums in the bronze plans, which are cheaper and less generous, are increasing by 3 percent—still not very much, by historical standards, but it's not as impressive as what's happening with the second-cheapest silver plans.
History matters, too. Obamacare critics will point out that premiums in most markets went up substantially last year, the law's first year of implementation, because insurers had to upgrade old plans to comply with the law's regulations on benefits and pricing. That's true. The law's tax credits partly or completely offset that increase for most people, and the law's goal was always to stabilize premiums after that shift. But the underlying sticker prices definitely increased last year.
Critics will also note that Obama, as a candidate and during the early months of his presidency, famously boasted that insurance premiums would come down by $2500. That hasn't happened, although the Affordable Care Act does seem to be reducing overall health spending relative to previous expectations.
The other caveat is really a warning for consumers. In many markets, the second-cheapest plan is changing from 2014 to 2015, either because new insurers are under-bidding the older ones, or because carriers that charged high premiums last year decided to cut prices this year. Los Angeles is one such place. This year, the second cheapest plan comes from Blue Shield. Next year, it will be Anthem. A consumer who switches from that Blue Shield plan to the Anthem plan might realize savings. A consumer who stays with the Blue Shield could actually have to pay more.
“This is great news for taxpayers, with competition driving down the cost of premium subsidies,” Levitt told me. “For consumers, competition is messier. There will be lower-cost plans available, but people need to be prepared to shop for the best deal if they want to avoid a premium hike.”
It’s confusing, I know. And you can safely assume that not all consumers are going to understand this. It’s going to cause real problems come open enrollment time, particularly since some people will choose to re-enroll in their current plans automatically. But this is the way competition works, for better or worse or (I would argue) some of both. Plans are fighting to claim market share, sometimes by using low prices to lure customers. Beneficiaries who know how to take advantage of this can save themselves some money Those who don’t understand the dynamics could get stuck with bigger bills.