(Bloomberg View) — If you buy insurance on the exchanges, your premiums are probably going up.
How much will depend on what state you live in. New data released by the government indicate that the lucky citizens of four states will see the price of their two cheapest options fall (by significant amounts, in Indiana and Mississippi).
See also: 3 PPACA exchange plan premium pro tips
On the other hand, citizens of 19 states, almost 3 million people, will see increases of more than 10 percent, and four states will see increases of more than 25 percent. On average, the premiums of the benchmark plans (the second-lowest silver plan offered in the market) are set to rise about 7.5 percent.
What you think about this probably depends on what you think of the the Patient Protection and Affordable Care Act (PPACA) — Obamacare. If you’re a supporter, 7.5 percent may compare favorably to premium increases in the years leading up to the law’s passage. If you opposed it, well, 7.5 percent sounds like a pretty large increase. And two states actually hit the 35 percent mark predicted by Donald Trump. Those big numbers will mean sticker shock for the folks buying without subsidies — and a higher bill for the taxpayers who pay subsidies.
What can we learn from the government’s figures?
• There was a lot of mispricing in the early years. Supporters of the law got very excited about low premiums in the first couple years of the program’s operation. Finally, it seemed, some government program had gotten health care costs under control! But those premiums were not based on the actual costs of providing insurance to people buying insurance on the exchanges. They were guesses. We now know that the insurers guessed wrong; many more lost money than made it in the first two years of the program’s operation. Those guesses are now being adjusted based on actual experience, which means that premiums will probably rise both this year and next.
• Bigger states are doing better. The government’s numbers are a weighted average of all the states offering policies through a federal exchange; that average is 7.5 percent. But the unweighted average — what you get by just averaging all the rate increases together and dividing by the number of states — is 11.5 percent. A weighted average is the correct way to look at national premiums. Alaska’s 21,000 people did see 30 percent rate hikes, but they are a small fraction of the overall insured population. But comparing the weighted average to the unweighted does tell us something: the outlying large increases are concentrated in smaller markets.
In the weighted average, they are swamped by Florida’s dainty 1.2 percent increase for its 1.6 million customers.
See also: The PPACA Florida puzzle
In many ways, it’s not surprising that smaller markets are where we’re seeing the most extreme changes. (In both directions: Mississippi premiums declined 8.2 percent.) Smaller markets have less competition for either insurers or the providers they have to pay — if Cody, Wyo., only has one hospital, the insurer can’t threaten to take their business to another provider. And the smaller the insurance pool, the harder it is for an insurer to get an accurate actuarial estimate of their expenses.