Open enrollment has started for individual health care coverage under the Affordable Care Act, aka “Obamacare,” making now a good time to check in on the program. As a reminder, most Americans are insured through their employers (150 million), Medicare (57 million), Medicaid/CHIP (nearly 73 million) or through Veterans Affairs (6.7 million). However, if you are one of the 11 million people who are covered by ACA or plan to purchase coverage, here are some important dates:
- Nov 1, 2016: The first day you can enroll, re-enroll, or change health plans for 2017.
- Dec 15, 2016: Deadline for coverage starting Jan 1, 2017.
- Jan 31, 2017: Last day to enroll in or change a 2017 health plan. After, you can enroll or change plans only if you qualify for a Special Enrollment Period.
By now you have probably heard that the average premium for a mid-level Obamacare plan is set to spike by an eye-popping 22 percent in 2017. The increase should not significantly affect the more than 80 percent of enrollees who qualify for premium tax credits to make coverage more affordable. (To qualify, income must be between 100 percent ($24,300 for a family of four) and 400 percent ($97,200 for a family of four) of the Federal Poverty Level. These are the 2016 amounts-2017 will not be available until January).
Even if you did not qualify for a premium credit last year, you should check again this year. According to HHS, “of the nearly 1.3 million HealthCare.gov consumers who did not receive tax credits in 2016, 22 percent have benchmark premiums and incomes in the range that may make them eligible for tax credits in 2017. In addition, an estimated 2.5 million consumers currently paying full price for individual market coverage off-Marketplace have incomes indicating they could be eligible for tax credits.”
Why are premiums rising by so much?
(1) Not enough young, healthy people have enrolled. When conceiving the plan, the government aimed to enroll a large portion of 18-to-35 year olds to help keep premiums lower. The goal was to have over a third of participants in the ACA plans in this cohort, but currently, they represent just over a quarter of the marketplace. Part of the issue may be that the penalty for not carrying insurance (the “individual mandate”) is too low. Yes, you read that correctly – too low! For 2016, the annual fee for not having insurance is $695 per adult, up from $295 in 2015 and $95 in 2014. For many young people, paying the fee may still be cheaper than the cost of health care insurance and deductibles.
(2) Those who did enroll, regardless of age, needed more care than anticipated. This is known as “adverse selection”, which occurs when buyers have better information (i.e. “I know that I am unhealthy and need lots of medical services”) than sellers, which results in the highest cost consumers purchasing more insurance.
(3) Insurers likely underpriced the plans initially. That may have been an actuarial error based on expectations of who would enroll (see 1 and 2), but regardless, it has led to some insurers exiting the program all together, especially in low-population areas.
The combination of the three issues has led to a smaller overall plan with rising costs. In these early years of Obamacare, what is clear is that more Americans have health coverage – the uninsured rate has fallen to the lowest rate on record. What remains unanswered is whether the government can rejigger incentives (increase the mandate, keep more insurers in the plan) to keep a lid on costs.