Consumers
could be hit with major price increases, without even knowing it, if they don’t
switch their health care plans.
By Sam Baker
If you like your Obamacare plan, you can keep it—but you might end
up paying a whole lot more.
People who decide to stick with the coverage they've already
gotten through Obamacare, rather than switching plans, are at risk for some of
the biggest premium spikes anywhere in the system. And some people won't even
know their costs went up until they get a bill from the IRS.
Insurance plans generally raise their premiums every year, but
those costs are just the tip of the iceberg for millions of Obamacare
enrollees. A series of other, largely invisible factors will also push up many
consumers' premiums.
In some cases, even if an insurance company doesn't raise its
rates at all, its customers could still end up owing thousands of dollars more
for their premiums. It's all a byproduct of complicated technical changes
triggered, ironically enough, by the law's success at bolstering competition
among insurers.
Many consumers will need to switch plans in order to keep their
costs steady, but health care experts question how many people will do that.
Switching plans can entail changing your doctor and adjusting to new
out-of-pocket costs, never mind the fresh trek through HealthCare.gov.
The White House has already set up an auto-renewal process, making it easier to
stick with the status quo.
And with so many behind-the-scenes factors at play, most people
might not even know that they need to go back through HealthCare.gov
just to keep the deal they already have.
"A lot of people aren't going to understand this," said
Susan Pantely, an actuary at the Milliman consulting firm.
Hidden cost of doing nothing
Let's break down the complex factors that make inertia so expensive
for Obamacare enrollees.
First, there are the standard premium increases insurers seek from
year to year. The lowest-cost plans in each state's marketplace were generally
the ones that attracted the most customers in 2014. But in many cases, they're
also the plans seeking above-average rate hikes.
"The prices of the lowest-cost [plans] tend to be going up
more," said Caroline Pearson, vice president at the consulting firm
Avalere Health. "Most people, if re-enrolled, will be enrolled in a plan
that has a premium increase."
But that's only part of the reason inertia is so expensive for
Obamacare enrollees. The vast majority of enrollees don't pay the full cost of
their premiums—85 percent are getting financial help from the government.
And
many of those consumers will find that their subsidies don't go as far next
year, even for the same plans.
The size of each person's subsidy is tied to a
"benchmark" plan. Poorer consumers only have to spend a certain
percentage of their income for that plan; the government pays the rest of the
premium. If you choose a more expensive policy, you have to pay the difference
on your own.
This year, about 3.4 million people picked the benchmark plan or
went one option cheaper. But as those plans raise their rates and new options
come to the market, they'll often lose their benchmark status to cheaper
competitors—and their customers will find themselves on the hook for a bigger
share of their premiums.
"I would expect that probably the majority of 2014 enrollees
are going to be impacted pretty substantially," said Milliman analyst Paul
Houchens.
Let's say your income is at about 150 percent of the poverty
line—roughly $17,000 per year. The law says you don't have to pay more than 4
percent of your income for the benchmark plan in your area. You chose that plan
this year, and you're getting a pretty generous subsidy.
Your plan wants to raise its rates by 5 percent next year—not
great, but not the end of the world when you're only paying about $50 per month
out of your pocket. You like the plan, the premium increase doesn't seem like a
lot, and HealthCare.gov was a headache last time, so you just auto-renew.
Unbeknownst to you, though, new insurers have started offering
cheaper plans in your area. Your plan is no longer the benchmark plan; a
cheaper one is. So now your subsidy is based on the cost of that plan, not the
one you have. This means you're on the hook not only for every dollar of your
plan's 5 percent premium increase, but also for every dollar of the difference
in price between your plan and the new benchmark plan.
These technical changes in subsidies could turn a 5 percent
premium increase into a spike of 30 to 100 percent in the net costs for
low-income consumers, according to a recent Milliam analysis.
There's already evidence this is happening: In an Avalere Health survey of nine states, the benchmark plan will change next
year in six of them. The lowest-cost plan will change in seven of the nine
states.
'The totally crazy part'
As cheaper plans come into the marketplace, millions of consumers
will see the cost of keeping their plan rise. But they might not know it.
HealthCare.gov isn't able to automatically recalculate
the subsidies existing consumers are eligible for. So, while the dollar value
of your financial assistance drops, you can only find out that's happening by
going back into the system and asking for a redetermination as part of the shopping
process.
Consumers who auto-renew their policies will get the same dollar
value of subsidies they got last year—even though changes in the marketplace
all but guarantee that will no longer be the right subsidy amount for millions
of people.
"That's the totally crazy part," Pearson said.
"They're basically going to send them what they know to be the wrong
subsidy."
The IRS will eventually figure out how much financial assistance
you should have received, and will reconcile the difference on your taxes. If
you should have gotten a bigger subsidy, the government will issue you a tax
credit. If your subsidy was too big, which would be the case if you keep your
plan and lower-cost options come to the market, you'll owe the IRS money.
Milliman has this example: Your plan doesn't change its premiums at all,
and your income isn't changing. You auto-renew and keep receiving the same
subsidy. But because of changes in the benchmark plan, you shouldn't actually
be receiving the same subsidy. Although it seems to you like nothing
changed—not your premium, not your income—you'll owe the IRS between $300 and
$2,500 when you pay your taxes, because your subsidy should have been smaller.
Unless and until HealthCare.gov is able to do this math automatically,
it's up to you to figure that out.
"We get into a very dangerous situation if we just tell
everybody they can just auto-enroll," Houchens said.
It pays to shop
Again, all of this is avoidable. These are the risks of
auto-renewal. Anyone who goes back in to HealthCare.gov to get a new
eligibility determination will see their updated subsidy as well as the current
list of available plans.
If you've been on the benchmark plan and you switch to the new
benchmark plan, your costs will stay exactly the same, because the subsidies
work by capping how much of your income you'll have to spend for that plan.
Or
maybe consumers will decide it's worth the extra money to stick with the plan
they have, but will get the advantage of knowing about those costs up front,
rather than being hit with a tax bill.
Consumers are "largely protected if they're willing to switch
plans," said Larry Levitt, vice president of special initiatives at the
Kaiser Family Foundation.
But will they be willing to switch?
Experience with Medicare's prescription-drug benefit suggests not.
Once seniors pick a drug plan, they're unlikely to reenter the marketplace and
shop around again, even if there's a plan that might work better for them,
Levitt said. The same is true of the insurance exchange that serves federal
employees—people rarely switch.
"There are lots of reasons to believe inertia will take hold
here and people won't switch," Levitt said. "Betting on inertia is
certainly a reasonable bet here."
But Levitt also said the Obamacare exchanges might be different.
Most of the people who signed up for coverage this year were previously
uninsured, so they probably haven't gotten too attached to a specific doctor
yet. They likely wouldn't feel like they're losing a lot by switching to a
cheaper policy, Levitt said. And the way people shopped this year indicated
that they're especially price-conscious.
"I think people may shop around more than they have in the
past," he said.
Complicating all of this is the auto-renewal process the
administration has set up. The administration is in a tough spot on
auto-renewal—it wants to keep as many of this year's 8 million sign-ups as
possible, but it also wants to keep real-world premium increases in check.
"It's a really tough balance. You don't want people to end up
uninsured, so you want to make renewal as easy as possible, but (you) also want
to make sure people understand they have other options," Levitt said.
"Auto-renewing people is not a crazy idea, but how well that works will
depend a lot on the communication that goes out to people."
