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Analysis: Obamacare Provides Competitive and Affordable Choices

Obamacare is providing competitive and affordable choices of health plans that consistently meet minimum requirements, according to a detailed analysis of county-level data available at the healthcare exchange website HealthCare.gov, combined with demographic data provided by Synergos Technologies.

healthcare.gov

Healthcare.gov premiums

The federally run health exchange offers plans in 2,512 counties located in 34 states with a total population of nearly 200 million people. The analysis revealed that the national average for a 50-plus adult for the second-lowest Silver premium is $386. The national average for the lowest-premium Bronze plan for an under-50 adult is $174.

What choices in insurers and plans are available on Healthcare.gov?

On average, there are 2.5 insurers and 9 Bronze plans covering 60% of the cost of care. For Silver plans, which cover 70% of the cost of care, there are 2.6 insurers and 10 Silver plans available per county. But the availability of insurers and plans is not distributed evenly. As expected, more populous counties have more insurers and health plans. Counties with a population of more than 500,000 have twice as many choices of insurers (average more than 4 insurers) compared to counties with a population of less than 50,000 (average more than 2 insurers).

Is competition restricted in smaller counties?

There are 454 counties in which only a single insurer is offering a Silver plan and 517 counties in which only a single insurer is offering a Bronze plan. Typically, these are smaller counties concentrated in southern states such as Mississippi, Texas, and Alabama. But it is worth noting that all the counties with a single insurer accounted for less than 10% of the total population in the 34 states. In other words, more than 90% of the population in the 34 states has access to two or more insurers and 10 or more Bronze and Silver plans apiece.

Does restricted competition drive premiums higher?

Although competition among insurers generally drives premiums lower, number of insurers may be only one of the contributing factors. Lack of competition among insurers does not always drive the premiums higher.

For example, the average for the second-lowest premium Silver plan for a 50-plus single adult in 74 counties in Texas with a single insurer is $335; the comparable average among 54 counties in Georgia is $585. The average among 77 counties in Mississippi is $502, but it is only $353 among 64 counties with a single insurer in Alabama. The least-expensive Bronze premium in Texas varies in a fairly tight range around the $135 average for an under-50 adult—regardless of the number of insurers or county population.

This disparity in premiums among different states indicates that some states may have been more diligent than others in challenging higher premiums through rate reviews.

What effect does income level have on premiums?

In many states, premiums are higher in counties where the median income is lower, which is also associated with smaller populations and fewer insurers. Are higher premiums a result of lack of competition, smaller population, underlying healthcare costs, or lower median incomes? It is arguable that lower median income—and therefore higher likelihood of federal subsidies—may be one of the motivating factors for insurers to charge higher premiums.

Do subsidies make plans more affordable?

An important aspect of affordability is that federal subsidies could significantly reduce monthly premiums for people with low incomes. Because Obamacare caps the amount consumers will pay as a percentage of their annual income, it is possible that low-income consumers may not even have to pay monthly premium if they qualify for subsidies.

Kaiser Family Foundation’s subsidy calculator (http://kff.org/interactive/subsidy-calculator/) shows that the premium for one adult earning $25,000 would be capped at $144 per month (or 6.92% of income) based on a Silver plan and the associated subsidy (depending on age, location, etc.) could be applied to a less expensive Bronze plan. For example, for a 49-year old adult located in zip code 39870 in Georgia, the Bronze premium could be $0 because the subsidy would cover the entire amount of the Bronze premium!

How do healthcare exchange premiums compare to the current premiums?

Because all plans available through the exchange must offer the same essential health benefits related to doctor visits, prescription drugs, hospitalization, maternity and newborn care, and preventive care, premiums available through the exchange cannot be compared to what consumers—many of whom are grossly underinsured—may be paying now, especially for a substandard insurance plan.

While canceled policies will provide fodder for political theater, it is an unfortunate but inevitable outcome of a major policy change for the better of this scope and complexity. The government routinely fails vehicles that do not meet emission testing standards. Why shouldn’t the same hold true for substandard healthcare plans that endanger people by underinsuring them?

It’s nothing new, but there is a lot of irresponsible journalism going on. Journalists with an axe to grind are interviewing uninformed people to push their foregone conclusions and to generate misinformation. Here is a classic example as reported in LA Times as reported by Michael Hiltzik: Another Obamacare horror story debunked

What is the bottom line?

The analysis confirms that Obamacare’s federal exchange offers competitive and affordable choices while providing essential health benefits and meeting minimum actuarial value thresholds. Expanding access to healthcare for millions of Americans in the individual market is an excellent first step in reducing overall healthcare costs.

On average, however, hospitals charge 370% of Medicare payments nationally. It is not uncommon for hospitals to report a charge-to-cost ratio of 700-800%. The high cost of the healthcare system as a whole is driven primarily by opaque and exorbitant provider prices—tempered only by illusory discounts hidden inside insurance products. To truly bend the healthcare cost curve down, these excessive cost markups will need to be challenged.

Employers of all sizes, as fiduciaries of self-funded plans, will need to implement a Cost Plus Model so that they can procure healthcare services in a transparent manner. Their focus should be on reducing the actual healthcare spend without reducing health benefits or increasing employees’ premiums.

PS: I sent out a formal press release on this topic on November 1 and it was picked up by Yahoo! Finance, MSN Money, and The Business Journal among many others.