October 25, 2016

Obamacare Premiums Will Increase About 25% This Year

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The federal government announced today that Obamacare premiums are set to rise 22 percent next year. Charles Gaba estimates that premiums will go up 25 percent. Those numbers are close enough that there’s probably no need to dive into the weeds to see if there are any gotchas. Premiums really are going up an average of about 25 percent next year. Here are five things to keep in mind:

  1. Yikes. That’s a big number.
  2. The biggest increase is 145 percent in Phoenix. I have no idea why. However, you can be sure that Donald Trump and others will be bleating about Obamacare premiums going up “as much as 145 percent.” (For the record, the lowest increase is -12 percent in Indianapolis. See Table 13 here for a full list.)
  3. The vast majority of people on Obamacare have incomes under 400 percent of the poverty level. All of them are shielded from ever paying more than a cap set by income level. At the lowest income level, they never have to pay more than 3 percent of their income. At the highest income level (about $100,000 for a family of four) they never have to pay more than 9 percent of their income.1 This means that in practice, the amount people pay will rise considerably less than 25 percent.2
  4. The 25 percent number assumes that you keep the same policy that you have in 2016. You can do better if you shop around. For example, HHS estimates that if everyone switched to the lowest-price plan in their metal level (bronze, silver, etc.), premiums would go down an average of 20 percent. Combined with point #3, this means that nearly all individuals will be able to avoid huge increases if they’re really in dire financial straits.
  5. As painful as this is, all that’s happening is that after being underpriced for years, Obamacare premiums are finally catching up to the original estimates from the Congressional Budget Office. A couple of months ago I suggested that premiums still had another 25 percent increase ahead, and this would likely be spread out over a couple of years. I was right about the size of the hike, but it’s happening in one year instead of two. The good news is that these prices hikes truly should help to stabilize the market and prevent more insurers from abandoning Obamacare. It might even prod a few new ones to enter the market.

So that’s that. Basically, this increase is painful, but was probably inevitable as insurers got more experience with the market. Subsidies and caps should shield a lot of people from the full pain of the increases, and the higher premium levels should be good for the long-term health of Obamacare. As for Republicans who plan to yell and scream about this, I have a deal for them: anyone who’s serious about reducing the suffering of folks who will be hurt by higher premiums has my full support for boosting subsidy levels.

1The precise numbers for 2017 are 3.06 percent and 9.69 percent.

2There are other subsidies too that shield people from premium hikes. In particular, Andrew Sprung will be mad at me if I don’t mention Cost Sharing Reductions, which many people can use to buy silver plans at reasonable prices.

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