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The Latest Obamacare Doom Prediction—and What to Think About It

John Moore/Getty Images

Wednesday’s prediction of Obamacare doom came with a pretty blunt headline: “O-care Premiums to Skyrocket.” It accompanied an article, written by Elise Viebeck of the Hill, in which some anonymous insurance company officials predicted that premiums in some Obamacare exchanges would increase sharply for 2015. One official, from a “swing state,” actually said his firm was planning to triple its rates. It was only a matter of time before it became part of the right-wing conversation, which means—I’m just guessing—it’s only a matter of time before it’s part of a Koch Brothers ad on your local television station.

As usual, the real news here is more complicated and ambiguous. The possibility of higher-than-normal rate increases in some parts of the country is real enough, for several reasons. Chief among them: Insurance companies may have expected a better mix of beneficiaries—in other words, more healthy people and fewer sicker ones. If so, the companies could discover that the premiums they set for this year are too low to cover the medical bills they must pay to doctors, hospitals, pharmacies, and the like. If that happens, the insurers could respond by raising premiums next year, perhaps substantially. Serious, honest people are worried about this scenario unfolding, based in part on rumblings they are picking up from within the insurance industry. “There is extensive concern about rate increases next year,” Caroline Pearson, vice president of Avalere Health, told the Fiscal Times. “Particularly since exchange enrollment is skewed toward older enrollees, some are concerned that plans will need to raise prices in 2015.”

But as Pearson also pointed out—and as all the "could"s and "if"s in the above paragraph imply—nobody really knows what’s going to happen. That includes the insurers themselves. Open enrollment hasn’t even ended yet. People can sign up for insurance until March 31 and, by all accounts, the pace of enrollment has quickened with the deadline approaching. Historically, young and healthy people have been the last to sign up. That’s certainly where the Obama Administration and its allies are focusing outreach efforts, with appeals via sports celebrities, over social media, and, of course, between the ferns.

It’s also not clear exactly what insurers were expecting in the first place—or how widely spread the anxiety over enrollment patterns is. As the very same Hill story noted, insurance company executives have been relatively sanguine lately, both in public statements and, more recently, in anonymous quotes for other outlets about the new insurance system’s stability. The confidence from those statements could simply be happy talk, designed to calm nervous investors. Then again, the angst in Wednesday’s Hill story could also be its own form of propaganda, designed to put pressure on Obama and his allies at a time when they are weighing how much to cut payments to the insurers who participate in the Medicare Advantage program.

Then there’s the key qualifier of the Hill story: the word “some.” Everybody treats Obamacare like its one big insurance market. As Larry Levitt of the Kaiser Foundation noted on twitter, it’s 51 insurance markets, one for each state plus the District of Columbia. And within the larger states, the premiums can vary substantially from one region to the next. Premiums in some places might go up by a lot, while premiums in other places might go up by only a little. A key factor will be the level of competition. In areas with many companies vying for business, insurers are likely to keep rates low for the same reason they have so far: They won’t want to lose customers. But in rural areas and states where one insurer predominates, carriers will have more leeway to raise prices—and some are likely to use it.

Keep in mind that the law has a series of features designed to protect or at least insulate individuals from excessive rate hikes. These include something called the “medical-loss ratio," which limits insurer profits, and various “shock absorbers” designed to compensate carriers that end up with less healthy beneficiaries than they anticipated. Regulators also have power to challenge rate increases, though authority and willingness to use it varies from state to state. Then there are the  law’s subsidies—those federal tax credits, which provide some consumers with huge discounts. By design, they limit what most marketplace customers will pay for the standard insurance plan, regardless of what that plan actually costs.

The subsidies don't apply to everybody and they aren't free. They come from the government—which means, ultimately, they come from the taxpayers. But the premiums insurers have offered this year turned out to be lower than predicted—which means, among other things, the government is already saving money on that part of the law. If lots of insurers guessed wrong and they have to raise rates next year, the subsidies will get bigger and the savings will dissipate. But they are unlikely to disappear.

A big problem with the Obamacare debate is the tendency for everybody to think of implementation in extreme terms—the law is working, or the law is not working. That's particularly true of the law's critics, who see in every negative development signs of catastrophic failure. The reality is that, particularly after one year, the law will be a mix of successes and setbacks, with lots of variation across the country. That muddle, combined with the huge uncertainty of what happens next, ought to give everybody pause before drawing hasty conclusions. It's safe to assume that won't happen here.