A study released Monday by the Urban Institute claims that Obamacare premiums, though rising, are still lower than those of comparable employer-based insurance plans. That finding generated several stories yesterday and today. But, writing at Forbes, Michael Cannon says the Urban Institute missed a few things that undercut its claims:
The study’s authors used the premiums that HealthCare.gov and state-run Exchange web sites quote prospective enrollees. Yet those quotes do not reflect the full premium for Exchange plans.
For example, taxpayers finance a large portion of Exchange-plan premiums through the ACA’s “reinsurance” program. The reinsurance program taxes almost all health plans, including most employer-sponsored plans, and uses the revenue to subsidize Exchange plans. The reinsurance program shifts a large part of the premiums for ObamaCare plans to people in non-ObamaCare plans. A study by the Mercatus Center found that in 2014, “net reinsurance payments paid by government to insurers selling individual market QHPs totaled about 20.4% of gross premiums.” That means that in 2014, the actual cost of Exchange plans—the full premium—was at least 20.4 percent higher than the stated premium. If net reinsurance payments to Exchange plans in 2016 are just 8 percent of gross premiums, the authors of the Urban study would have to adjust Exchange plan premiums upward not by 24 percent, but by 34 percent (1.24 * 1.08 ≈ 1.34). Applying just this one hidden part of Exchange premiums to the Urban Institute’s results shrinks the Exchange plan’s supposed nationwide premium advantage from 10 percent to 3 percent. But wait, there’s more.
Exchange-participating carriers have suffered losses, even after accounting for net reinsurance subsidies. So the full premium for Exchange coverage is higher still–and the insurers are paying part of it. In 2014, carriers suffered unreimbursed losses of $2.5 billion. We don’t have data yet, but the government has indicated carriers again suffered large unreimbursed losses in 2015. The Mercatus Center’s Brian Blase, a former congressional oversight investigator, estimates that even after accounting for net reinsurance subsidies, Exchange plans lost an average $1,000 per enrollee in 2015. If losses are similar in 2016, then the average Exchange-plan premium would actually be 13 percent higher than the average employer-plan premium.
If the government had been allowed to cover all the losses claimed under the risk corridors program, it would be very difficult to argue this money didn’t count toward the cost of plans. That fact that they were prevented from doing so just means the insurers paid those fees out of their own surplus. Either way, the actual cost of those plans is more than is indicated by the premiums on the exchange website.
Cannon concludes, “When we incorporate the full premium for Exchange plans, the smoke clears and we see Exchange coverage is indeed more expensive than employer-sponsored coverage. There ain’t no such thing as a free lunch.”