View: Cost of cheapest PPACA plans is soaring

Contrary to expectations, the mandate really doesn’t seem to be doing much to push people to buy insurance, at least yet (the penalty is set to go up again this year, and that may get people to pay attention). The subsidies, on the other hand, clearly have a large effect, which is why the customer base for the exchanges is so disproportionately composed of folks who are getting large amounts of taxpayer assistance to buy insurance. Anything that increases the gap between the cost of the insurance and the subsidy they are getting is therefore worrisome, if you want the exchanges to get and stay healthy.

It is possible to find out what different rates are being charged by insurers in many states; I have a giant spreadsheet of the 2016 rate increases for those states that make them available, and boy does that make me popular at cocktail parties. Unfortunately, we still don’t know what rate increases people are facing, because we don’t know what individuals had in 2015, or what they’ll buy in 2016.

This is frustrating. But a consulting company, Avalere Health, has provided at least slightly more data than we had before, supplementing the administration’s release of the information on benchmark plans by looking at the cost of the cheapest Bronze and Silver policies. It’s still far more limited than one would like, but looking at those rates does give us additional information.

The biggest thing they tell us is that, as I suspected when I wrote about the CMS release, the whole bottom of the market is undergoing a fairly massive repricing. In most states, the cost of the cheapest Silver plan, relative to the cheapest one last year, rose even more than the benchmark rate. And in most states, the cost of the cheapest Bronze plan went up by more than the cost of the cheapest Silver plan. (The average increase was 13 percent, but it looks as if it’s unweighted, while the government used a weighted average. As I noted last week, the weighted average is usually the most meaningful national metric, but the unweighted can be revealing as well.)

That still doesn’t tell us what happened at the top of the market, with the carriage trade splurging on policies that cover nearly everything. But I think there’s one thing we can say for certain: Insurers significantly underestimated how much people would spend on health care, even if they chose stripped-down plans that have narrow provider networks and require consumers to cover a significant portion of their own costs.

Some of this may reflect pent-up demand, if folks who had been putting off treatment for years went out and got all the services they’d been delaying. But the consensus seems to be that the pool is sicker than expected(and that includes unsubsidized folks who are buying insurance off of the exchanges, but form a single actuarial risk pool for the purposes of pricing the insurance). It’s also older; the administration was looking for about 40 percent of exchange enrollment to come from folks 18 to 35, and at the end of the last enrollment period, that number was stubbornly stuck around 28 percent.

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This is not surprising, exactly, but it is perhaps somewhat disappointing. Subsidies or no, people who don’t get a lot of value out of insurance don’t seem to be buying it. As a result, the cost of the cheaper policies — the ones you’d expect the healthier folks to be buying, since they don’t expect to use it much — is going to have to go up, because the average cost to cover the people who remain is higher than initially hoped.

Does this mean that Obamacare — the Patient Protection and Affordable Care Act (PPACA) — is in the early stages of a death spiral? We’re certainly not in death spiral territory now, and it’s too early to say whether we’re headed there, because the program is still evolving. As I say, the mandate has so far proven surprisingly irrelevant. But this year it goes up to a pretty hefty sum — the higher of $695 per adult and $347.50 per child, or 2.5 percent of your annual income — and perhaps people will look at the higher fees, sigh, and finally decide that they might as well pay a little bit extra and get some insurance. More realistically, perhaps they will freak out in spring of 2017, when they see what the mandate penalty does to their 2016 tax refund, and head over to the exchanges when the next open enrollment period finally rolls around.

To be sure, 2016 is also the year that the risk-adjustment programs end, which will tend to push prices up. This law has a lot of moving parts, and it’s hard to assess it while they’re in motion. All we can do is wait and see where they finally end up.