Posted by Curt on 5 June, 2013 at 8:36 am. 1 comment.


Megan McArdle:

There’s been some pretty fierce back and forth in the preceding week over the question of “rate shock”: the hefty increase in insurance premiums that people–particularly young and healthy people–can expect to pay for health insurance come 2014. I don’t really want to recap here, so if you want to follow the blow-by-blow–and the blows got pretty fierce–Will Wilkinson has a pretty good summary over at The Economist.

I don’t really want to play referee, either, but I’ll try. I think a fair summary would be that some older and/or sicker people will find health insurance cheaper and easier to obtain, while some young people will find it a lot more expensive than they were expecting. People who supported Obamacare think that the former is important and the latter is relatively trivial, while people who opposed Obamacare believe the reverse. People who supported Obamacare are very angry at people who opposed it for emphasizing the rate shock, rather than pointing out all the benefits to other people, which would obviously present Obamacare in a much more favorable light. People who opposed Obamacare think since Obamacare was sold on the grounds that it would make insurance cheaper for everyone except rich people, the fact that a lot of non-rich people will apparently pay more deserves some individual focus. And since the supporters do not regularly caveat their articles extolling the benefits of Obamacare with a note about all the bad possible side effects, it’s hard to argue that the opponents are obligated to do the opposite.

Who’s right? At some level, this is a theological debate, not a technical analysis. I am going to argue that rate shock does matter, for a number of reasons. Then you can decide for yourself which aspect matters more.

The most basic reason that rate shock matters is that I don’t think young single people were expecting it. It’s true that during health care reform, the reformers acknowledged that some people would end up with a big health insurance bill they hadn’t had before. But I wouldn’t say that they exactly emphasized this aspect. The implication that I, for one, took away from their analyses was that the subsidies would substantially reduce the cost for even quite middle class people. Maybe a successful young IT contractor living in a nice condo would have to pay a few thousand dollars for the insurance he hadn’t been buying, but I was under the impression that your average scraping-by clerical worker would pretty much have their bill covered, or reduced to some negligble sum.

So I got a sort of a shock today when I started playing with the Kaiser Family Foundation’s subsidy calculator. I had it at the back of my mind that a single young freelance writer living in California, Washington, or New York, and making $32,000 a year, would qualify for insurance at a basically nominal cost. (The profession doesn’t matter so much, but for obvious reasons, this is a type that I’m particularly familiar with.) It turns out that this person will qualify for a subsidy of about $213 a year, based on an expected “Silver Plan” (the medium coverage package) cost of $3,018, or about $235 a month.

Of course, if you make less than that, you get a bigger subsidy; at $25,000 a year your annual subsidy would be about $1400. However, if you make even a few thousand more, you get no subsidy at all.

But don’t panic just yet, Young People: you don’t have to pay $2805 if you buy cheaper insurance. Luckily California just released their 2014 rates, so we can see what options at least a few of you will have.

It looks to me like a 25- or 30-year-old freelancer in the great state of California can probably get the Silver Plan for somewhere between $200 to $250 a month. And if they’re willing to take less coverage–a high deductible “catastrophic” plan (available only to those under 30), or the Bronze plan, which has more cost sharing, they can pay as little as $185 a month in San Francisco, or $117 a month in Los Angeles. Though I’m not sure I trust that last number; looking at all the other plans; $150 a month seems more likely.

The good news for those turning 30 is that regular “Bronze” plans aren’t actually all that much more expensive than catastrophic plans. The bad news is that that probably means that purchasers of either sort of plan can expect to spend the full limit–about $5,500 a year, I believe–before they get much in the way of free health services.

But I digress. Back to the monthly cost for our just-getting-by freelancer in California; if we add in the monthly subsidy of $17.75, their monthly insurance bill for will come out to somewhere between $135 and $170 a month if they choose the options with the most cost-sharing; $185 to $235 if they want something that will pay a substantial chunk of their ordinary doctor’s bills.

On the one hand, it’s great that young single folks can insure themselves for about $1600-2000 a year, even if they don’t qualify for a subsidy. On the other hand, as Will points out, lots of young single people can insure themselves for a lot less than that right now. I don’t think this is what they’ve been expecting.

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