How Bad Was Premium Rate Shock?
Study: Comparing Premiums Before and After ACA Implementation
Because health status can no longer determine a person’s premium rate under the Affordable Care Act, insurers and actuaries expected everyone buying individual health insurance to pay a much higher rate. The term “sticker shock” or “premium rate shock” was used to warn people of the approaching rate hikes in Obamacare’s 2014 implementation.
In late 2012, we did a study on individual market plans in the 50 largest US cities by population. Rates didn’t increase too substantially from 2012 to 2013, but in 2014, marketplaces and new laws were introduced, and some shifting occurred.
Generally speaking, in our 2012 study, the trend of pre-Affordable Care Act rates showed that in cities where the cost of living tends to be higher, health plan premiums followed.
Whether or not health insurance was guaranteed issue or nondiscriminatory also played a role in raising the cost of coverage.
This meant that New York City, Boston, and big cities in Colorado and the West Coast were generally more costly for individual coverage.
Conversely, plans seemed less expensive in Southwestern and Midwestern states like Kansas, Oklahoma, Arizona and Nevada. Las Vegas was a very affordable city for health insurance, which has changed since the introduction of the marketplaces and new laws.
With the old rates on hand, we compared them to 2014 individual plan premiums — off the exchange. The results were interesting, as rates decreased in some areas, and grew immensely in others.
There were several variables, including very different plan options between the two study years. In our 2012 study, we ran quotes for 30-year-old men and women searching for a $2500 deductible plan with 80% coinsurance, and averaged the prices for each gender together.
In both studies, we came across cities where we couldn’t find a plan that exactly fit these criteria, so we chose a plan with a reasonable premium, copays for various services, and a low deductible (sometimes zero with HMO plans). Essentially, we picked the best plan for your dollar in each locale.
Below are the before- and after-ACA rates of plans as similar as we could find in the 50 largest cities in the US to illustrate “rate shock.”
Results: Premium Rate Differences Under Obamacare
|City||Pre-ACA Premium*||Post-ACA Premium||Rate Difference|
|Long Beach, CA||$209||$224||$15|
|Kansas City, MO||$113||$263||$150|
|New York City||$562||$519||-$43|
*Pre-ACA Premiums were calculated by averaging men’s and women’s rates together, while Post-ACA health plans do not charge different rates based on gender.
Our comparison shows that rate shock isn’t real for every market, but significant increases did occur in some areas. Decreases also took place, which is a relief for those high cost regions.
The most noticeable changes hit Indianapolis, where health plan premiums jumped a staggering $252 with the implementation of the health law, and Seattle, where rates dropped by $67.
On average, rates increased by $99. Compared to normal years, this is a pretty large rise in costs.
After viewing rates across the country after Obamacare took effect, it would seem costs have leveled out in many regions, except for New York. New York City will always top the list by having the most expensive premiums possible, but even Manhattan premiums dropped a bit compared to prior years.
But in other areas where coverage was previously cheaper, rates have increased both with inflation and the anticipated use of subsidies. As millions of people qualify for tax credits to reduce their monthly premium, insurers raised rates enough so that they wouldn’t be issuing free plans to half the applicants.
In cities where premiums were exorbitantly expensive before the ACA, coverage is now just pricey.
Aside from the Big Apple, take Seattle, San Francisco and Boston, for example: each of these topped our “Most Expensive” lists in 2012. All of California and Massachusetts had high premiums prior to the federal health reform law, but major cities got hit the worst.
Both states passed legislation allowing more people to gain health insurance before Obamacare, which made coverage cost more. Washington State also passed laws prohibiting insurers from charging higher premiums based on gender, which made Seattle coverage costs some of the nation’s highest on top of the city’s already high cost of, well, everything.
After the health law spread nationwide and its healthcare marketplaces opened, access to coverage increased, and therefore so did premiums and taxes. This is good news, however, if you qualify for a subsidy on the marketplace in your state.