Exchange Rates

Hospital Room TallA couple weeks ago, I linked to an article talking about the PPACA’s Exchanges – the mechanism by which those with pre-existing conditions will be insurable. Rick Ungar said:

Upon reviewing the data, I was indeed shocked by the proposed premium rates—but not in the way you might expect. The jolt that I was experiencing was not the result of the predicted out-of-control premium costs but the shock of rates far lower than what I expected—even at the lowest end of the age scale.

Not just that. Claims were being made that rates would be lowered. And for some, they might. Mike Schilling commented:

My company just had our annual health-care enrollment meeting, and it was the usual: less coverage at a higher cost. But with a possible silver lining: since we’re demographically unfortunate (a small company with a high proportion of older employees), moving over to the exchanges might help us a lot.

This all left me feeling great. Even though I came down against PPACA, it was a relatively close call and the exchanges were one of the aspects that I had hope for. I wasn’t stunned to read that costs were coming in below expectations (though I wouldn’t have been stunned the other way, either).

Why do the exchanges matter so much? Because if the exchanges work, it’s game over for the health care debate as far as I am concerned. We have our health care system, and it’s only a matter of figuring out how to transition from employer-subsidy to government-subsidy. Then, bam! We’re done.

So it was a real let-down to read Avik Roy’s piece, pointing out that the numbers suggesting savings were based on faulty comparisons:

[F]or the typical 25-year-old male non-smoking Californian, Obamacare will drive premiums up by between 100 and 123 percent.

Under Obamacare, only people under the age of 30 can participate in the slightly cheaper catastrophic plan. So if you’re 40, your cheapest option is the bronze plan. In California, the median price of a bronze plan for a 40-year-old male non-smoker will be $261.

But on eHealthInsurance, the median cost of the five cheapest plans was $121. That is, Obamacare will increase individual-market premiums by an average of 116 percent.

For both 25-year-olds and 40-year-olds, then, Californians under Obamacare who buy insurance for themselves will see their insurance premiums double.

Now, Roy’s comparisons themselves are imperfect. Twenty-five year old, non-smoking men, are not the best basis from which to judge. And for the 40 year old, he’s not clear but it appears he is comparing the cheapest available plan and not comparable plans. On the one hand, the sudden unavailability of inexpensive plans is significant, but on the other it’s not a true apples-to-apples comparison (if I am reading Roy correctly).

But it was enough to convince me that, except for various cases of PECs and cases like Mr. Schilling’s, rates will go up for most people. This was confirmed by the many responses to Roy, which despite their criticisms (and in some cases calling him names) did not contest his central point.

Ezra Klein argued that stated rates were misleading because some people paid more and some couldn’t get coverage, and that people will get subsidies. He seemed to concede the point that rates will go up for most people, but that this is a necessary sacrifice. Whether that’s true or not is a value judgment. There’s nothing at all wrong, in my view, taking the view that higher premiums are worth it for more consistent coverage.

But that wasn’t what we were hoping for, that wasn’t what was sold to us, and that wasn’t what the initial reports had lead me to believe. So I remain disappointed.

Roy responded, pointing out that the subsidies won’t take care of it. He further argues, along with Will Wilkinson, that the rates for the young and the healthy actually matter a great deal. Because if it’s not considered affordable, they won’t sign up. And if they don’t sign up, we don’t avoid the death spiral that the mandate was put in place to prevent.

Now, that the exchanges didn’t work as well as I had hoped is not really an indictment of PPACA. It may negatively affect my opinion of the law, but I wasn’t a supporter anyway. And that the exchanges didn’t work in this context doesn’t actually mean that we couldn’t try to run a system off a similarly market-based idea. It’s possible that if we put all the healthy working people that are currently on employer plans into the general market, that rates could go down.

Unfortunately, the confirmation of that I was hoping for did not materialize.

Will Truman

Will Truman is the Editor-in-Chief of Ordinary Times. He is also on Twitter.


  1. There are still a lot of people out there who don’t know what to think but have inclinations one way or the other…

    This may be blatantly obvious but *IF* things are going to be made worse, then the people who are arguing that things are going to be awesome are actually making things worse. (Surely to backtrack by saying something between “hey, the numbers I had at the time told me that I was right” and “technically, I am right it’s just because you’re 45 that what I said at the time didn’t apply to you.”)

    And, on the other side, the people preaching doom/gloom, if they’re wrong, are going to make things better. “Huh, I thought my premiums would double. They only went up by ten bucks! I don’t mind paying an extra Hamilton to make sure My Fellow Citizens have health care!” (With the doomsayers yelling “Just wait! Destruction is around the corner!”)

    But we still don’t know what’s *REALLY* going to happen.

    • As near as I can tell, Roy’s detractors are mad, but conceding his primary argument, that rates will go up for most people. I haven’t yet seen arguments staying otherwise. I was anxious to believe that rates might be lower with the exchanges and subsidies and the mandate, but so far it’s not looking that way for most people. The primary counter I am seeing is that the extra cost will be worth it because more people will be insurable and rates will go down for some. But while that may be true, it’s conceding a lot.

      Can anyone point me to numbers stating that average rates will go down? That’s the counterargument I haven’t seen yet.

      • I mean, for an averageish family of four, does it go up or does it go down? Nothing in the response to Roy suggests to me it will go down.

      • I think Roy’s detractors are saying he only did enough research to find the result he wanted. So far there have been mixed analysis about rates going down for some people and not others. I don’t think there is a firm conclusion.

        • Maybe Roy did exactly that, but I find his methodology more convincing than that of his detractors, who don’t seem to have more favorable numbers to rebut.

          I have my own issues with Roy’s methodology, as stated in the post, but I want to see opposing calculations instead of what I am seeing.

          • What sort of opposing calculations are you looking for? Roy compared policies that are available to everyone, with uniform and meaningful coverage, to policies only available to cherry-picked consumers and having whatever coverage the insurance company wants to offer. I suppose one can be disappointed the former is more expensive than the latter (at least to those to whom it is available) but on what basis could one have expected otherwise?

          • I’d like to know medians, for a start. Even if they’re more, I’m perfectly willing to accept that. I’d be thrilled if it were, say, 10% more. 20% even, on average. I’d accept higher, though then we would no longer be in the “game over” state I was hoping for. But I’d like to know how much m0re.

            Roy’s numbers are higher. I was initially dismissive of them because you can’t extrapolate from a 25 year old (Roy and Wilkinson argue why the 25yo is very important, fair enough, but that’s a different argument). But then I saw he did a 40 year old, too. And there, the difference was even greater. Ohio is also reporting significant hikes.

            If Roy’s critics want to reply that of course it’s going to be more expensive, that’s fine. But this shift should be acknowledged, because we were sold on something different. I was skeptical then, and I was criticized for my skepticism. If people believed that rates wouldn’t go up, it was because “affordability” was a selling point of this law.

            I did think there was a chance that average costs would go down simply because we’d be throwing more people into the system. I’d hoped that, combined with market pressures, may exceed my somewhat negative predictions.

            When the California numbers came out, I was truly elated. When Roy responded, I was initially a little skeptical. But the further I get into it, the more Roy is hammering his point about increased premiums and his critics are trying to shift the conversation to the benefits. The only arguments I’ve seen suggesting that most people won’t pay more are the subsidies and the reality of prices under the current system. Contrary to popular belief, Roy has addressed both of these arguments (better than what I’ve seen from his critics, to be honest). The counterargument now is numbers.

          • If Roy’s critics want to reply that of course it’s going to be more expensive, that’s fine. But this shift should be acknowledged, because we were sold on something different.

            I’m guessing that anyone who predicted prices would not rise substantially did so with the expectation the comparison would be between equivalent products. If you can point to someone predicting the exchanges would necessarily result in lower prices regardless of the product, I’d be interested.

            I just didn’t expect we’d be having a conversation in which widely disparate products are compared on price, apparently without irony. I doubt other observers expected such a result either.

          • So, then, all we need is someone to compare equivalent plans. If the price difference collapses, Roy has been rebutted (to an extent). That’s pretty much what I am asking for.

          • By “to an extent” I mean, if such numbers are provided, then it becomes a question of “what do we mean by ‘more expensive’?”

            Roy can argue that ultimate dollar amount matters most, and that by requiring people to get more and thus pay more, the ‘rate shock’ criticism holds. His critics can argue that it’s not ‘rate shock’ any more than requiring people to get liability insurance on their car requires that people pay for reliability insurance on their car and there’s no reason to expect it to be free.

            I think both sides would have a point. I wish the conversation had gone in that direction. Because, truly, I just want to know how well the exchanges+mandate are working at the outset. Revisit in five years. If they work well now and then, we may just have our national, universal health care system.

          • Right, and that’s hard to do because you’re unlikely to find preexisting policies that don’t cherry-pick, and even apart from that you’re unlikely to find policies that are directly comparable in features.

            So such a study would be quite difficult and unlikely, which is one reason Roy’s facile analysis was greeted with such derision by those who understand the issues.

          • How can it be said that Roy “had a point” when that point is essentially that freeloading is cheaper than pulling your weight?

          • Ballpark similar would be okay. Similar deductibles, similar basic coverages. Then we can look at a difference of, say, 20% and discuss whether or not that is worth the cost bump.

            I’d also add that Roy’s numbers actually matter, regardless, even if they’re n0t determinative. The cost of removing the cheapest plans from the market is not immaterial, even if it’s in our or society’s best interest.

            At some point, “lower premiums for everyone” has to have meaning. Something that differs from “of course you’ll be paying more (because you’ll be getting more).”

          • More like that, as of a few years ago (2009), as a smoker (age: 30), I could get a catastrophic insurance policy for $150 a month.

            Under PPACA, I probably won’t be able to. Maybe that’s what has to happen so that uninsurables like my wife can be insured, but that’s not irrelevant. It’s a point.

          • Well, OK I guess, then. I for one didn’t see any blanket promises of “lower premiums for everyone” without at least some qualification, but I suppose some ACA supporter somewhere may have issued such a promise.

          • The “somebody, somewhere” was Nancy Pelosi. Now, I don’t want to be overly literal here. An indication that most people will pay lower premiums (instead of paying more to get more) would be sufficient backing of that statement, as far as I’m concerned. Or money saved on the best apples-to-apples comparisons we can find, that’d be good, too.

            “Affordability” is in the name of the law, though. I think that that should have implied lower costs to more than just those that have to pay high amounts. Pointing out otherwise – that most people will pay more – strikes me as being in-bounds here. Unless that turns out to be false, of course.

            Which, of course, I genuinely hope it does. I really, really want PPACA to work and to feel embarrassed that I ever had reservations about it. I welcome all good news as I had welcomed the initial report of savings in Cali.

  2. Roy took the advertised price of something (‘as low as $XXX!’) as being honest, and furthermore did so with insurance, which is known to be full of loopholes, deductables and screening (and price increases, and people going back through your application to see if you left off the fact that you had the flu 10 years ago, and can therefore be dropped).

    He got demolished, and rightfully so.

    • I’m one of those people who, in reading the first paragraph, assumed that the last sentence would *NOT* be “He got demolished, and rightfully so.”

    • which is known to be

      Truly, the words of a man who knows what he’s talking about.

      Yes, obviously the cheaper health plans advertised on have deductibles. You know what other plans have deductibles? The silver ($2000) and bronze ($5000) plans on the California exchange. They also have $6400 annual out-of-pocket maximums, which is higher than a lot of the cheaper plans on

      Will, above, says that he was able to get insurance for $150/month as a 30-year-old smoker. I pay $120/month, and was offered precisely the rate that was advertised. My plan has a $3500 deductible, $5000 out-of-pocket limit (including deductible), no lifetime coverage limit, and first-dollar coverage on annual checkups. In other words, it falls somewhere between the silver and bronze plans on the California exchanges.

      My screening consisted of answering a series of questions about whether I had been diagnosed with or treated for any of a series of conditions within the past five years (for chronic or especially severe conditions) or one year (for acute conditions). I was not asked about family history, nor was I asked any open-ended questions about past health issues not specifically mentioned in the questionnaire. If you can find an insurer that asks a question that would require you to disclose a case of the flu ten years ago, I’d like to hear about it.

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