A major new analysis shows that hundreds of thousands of Californians will see their monthly insurance premiums fall an average 47 percent under President Obama's health care overhaul, in large part due to tax credits and subsidies. It is the first detailed look at how health insurance premiums could change under President Obama's Affordable Care Act, which goes into effect on Jan. 1, 2014.
Covered California, the agency charged with creating the state's new health insurance marketplace, commissioned the analysis. The report looked at the individual market only and did not examine the small or large group market.
Under the ACA people with incomes up to four times the federal poverty level (about $94,000 for a family of four; $46,000 for an individual) will be eligible for subsidies from the federal government. That's about 570,000 people, Covered California said.
Major findings from the study include:
- Individuals with incomes less than four times the poverty level are "likely to pay" 47 to 84 percent less for their monthly premium compared to this year
- Premiums would have increased 9 percent in 2014 because of health care inflation, even without the ACA
The analysis was conducted by Milliman, a large actuarial firm.
According to the non-partisan Kaiser Family Foundation, just over 2 million Californians buy insurance on the individual market. About 50 percent of Californians get insurance from their employer. Larry Levitt, senior vice president of the foundation, called the report a "complete and well done analysis."
"Probably the most important thing this analysis did," Levitt said, "was to help people understand that not everyone is going to be faced with higher premiums as a result of the Affordable Care Act."
Still, some people will see higher premiums, in particular, people with incomes above 400 percent of the poverty level. More than a million of these middle and upper-income earners will likely experience an increase of 20 percent, the report found.
The Milliman analysis comes on the heels of another actuarial review completed this week. That one, from the Society of Actuaries, concluded costs would go up 32 percent under the ACA. But Levitt said that report was flawed, in part because it did not look across the ACA as a whole -- or at the two primary ways people pay for health care: through premiums and through direct out-or-pocket costs such as deductibles and co-pays.
The Milliman report looked at both these fees to consumers. Because of anticipated benefits of the ACA, increased premium rates that some will pay could be partially offset by reduced out-of-pocket costs for health care, the study found.
In a release, Covered California Executive Director Peter Lee called the study "an important step in determining strategies to help protect" individuals from cost increases.
In California, people buying insurance on the individual market have experienced dramatic premium rate hikes over the last several years.
"Our top priority is to provide Californians with affordable health insurance options," Lee said. "We are pleased that most individuals will pay lower rates and receive better coverage."
The report also found that people in their 20s are likely to experience the biggest increase in monthly premiums (roughly 25 percent higher than the average increase for all ages), but in its release Covered California said many of these younger Californians are likely to be eligible for subsidies.
Levitt credited the study for estimating cost reductions due to competition expected under the Affordable Care Act. Right now on the individual market in California, it is very difficult for consumers to comparison shop. Often they cannot even find out what their premium will be until they fill out a detailed health questionnaire, Levitt said. The goal of the new insurance marketplace is to allow a more straightforward comparison of health insurance plans.
"Insurers will respond to that price competition by changing their cost structure," Levitt said. The analysis found that this competition should bring costs down an average 6 percent.
The California Association of Health Plans reiterated the group's overall support for the Affordable Care Act, but acknowledged the new competitive marketplace coming.
"These are completely different products in the individual market than what is sold today," said Charles Bacchi, vice president of the group told KQED's Mina Kim. "Health plans are going through the process of changing the way they provide coverage to this portion of the population, all on top of trying to price the products, deal with underlying health care costs and still remain competitive in the marketplace."
Insurance companies are expected to submit plans to Covered California next month, to determine eligibility for the marketplace. Plans -- and premiums -- will be announced this summer. But this study is well-timed, Levitt said.
"People are forming impressions now about how this law will work and what it means to them," he said. "So having accurate information out there about how people may be affected is really important."
The new health insurance marketplace is scheduled to open to consumers on Oct. 1. Individuals will be able to shop for insurance that will take effect Jan. 1, 2014.