Everything You Know About Obamacare Premiums Is Wrong

Neither party's spin will work for the law's next challenges.

Dear Republicans and Democrats: Burn your Obamacare playbook.

With the first year of open enrollment finished, the next big question about the Affordable Care Act is how it will look entering Year Two. Specifically, what will happen to the premiums people pay for health plans they bought through the law's insurance exchanges?

Washington already went through that premium argument during Obamacare Year One, and it was terrible — at least for those interested in anything close to an honest debate.

Making an apples-to-apples comparison of people's pre- and post-Obamacare premium costs was all but impossible, even before those efforts were blown aside by wildly exaggerated claims based on little to no evidence.

Both sides will no doubt trot out the same claims for 2015, but this time around, there's an antidote: When rate filings begin to trickle out over the summer, there will be real data to help cut through the nonsense.

That's a risky proposition for both sides of the Obamacare debate.

In the spin wars over 2014 premiums, Democrats and Republicans both got a lot of mileage out of uncertainty. These were new plans, being offered for the first time, bound by a new regulatory scheme, and sold through new marketplaces. And there wasn't much good information about the plans that were available on the individual market pre-Obamacare

All of that newness made it harder to compare pre- and post-Obamacare premiums, which in turn made it easier for critics — often abetted by headline writers — to paint a severely distorted picture of what was happening.

Apples to apples

For example, Ohio's Republican lieutenant governor warned of massive premium hikes in 2014 — by comparing Obamacare policies to a plan that was only available to young, healthy men, carried up to $25,000 in out-of-pocket costs (exchange plans cap out-of-pocket spending at $6,500), and would not cover a whole range of services, including some straightforward doctor visits.

That's plainly not a fair comparison. Sure, people on that bare-bones plan would see their premiums rise, but Ohio's estimate wasn't based on the cost of a plan comparable to the policies in the state's exchange, or the most popular individual plan in the state, or an average individual plan. It was a political statement masquerading as math, and the vagueness of the pre-Obamacare market made it easier to get away with.

Similarly, Wisconsin Gov. Scott Walker's office released an "estimate" around rate-filing time last year predicting massive premium hikes for 2014. But it wouldn't say how much it expected plans to cost, in dollars, or what they cost pre-Obamacare — the two numbers you'd need in order to know how much premiums were going to increase.

That form of distortion won't be available for 2015 premiums, because we'll be comparing the same plans from one year to the next. Most states have released real, detailed data about the plans sold through their exchanges, so journalists and analysts looking for a real comparison will have solid information to work from. That wasn't the case for 2014.

Critics (and formal rate filings) also rarely factor in the law's tax subsidies, which help low-income households cover their premiums. About 80 percent of enrollees are receiving financial assistance, so most people's costs aren't as high as the premiums that insurers file.

No more excuses

More hard data isn't necessarily a good thing for the White House. The administration and its allies have been able to fall back on the same murkiness about the pre-Obamacare market — the lack of clear, aggregate information about individual plans' deductibles, coverage limits, and availability to people who were not 25-year-old men.

When California released the rates for its exchange plans, it tried to make the numbers look better by comparing them to the average cost of plans sold to small businesses — a different part of the insurance market.

State officials said small-business plans were more comparable to the benefit levels in Obamacare's individual policies. Which is true, but also sort of like telling someone they have to trade in their Camry for a Lexus, but not to worry because the Lexus is a good deal compared to a BMW.

For all the gaping flaws in analyses like Ohio's, the law's critics were (and still are) correct about the fundamental trade-off in insurance premiums: More benefit mandates and coverage guarantees make plans more expensive, particularly for young people. And it's not as if every pre-Obamacare plan came with a $25,000 deductible.

Critics' big play last year was to come up with unrealistic comparisons that made things look worse than they really were. The administration's response was to say that no one could really tell how much premiums were going up, because information about the plans people had before was so incomplete and plans varied so widely. There was a lot of truth to that, but there won't be next time, when we're comparing the same plans across two years.

And while critics overlooked the law's tax subsidies, rising premiums are still rising premiums. The tax credits are pegged to the cost of insurance — so the cost to taxpayers rises along with premiums — and also to household income, so all but the poorest families would still see their costs rise.

Keep it in context

Sadly, some tools of distortion remain available in year two. One big thing to look out for: Reading too much into one data point.

There is no national premium, or even one premium for each state. Premiums vary by region within each state, and can also vary based on individual consumers' age and smoking status. So when insurers' 2015 rates start to emerge, the variations will be pretty big. One plan in one region within one state could easily see a huge jump, while the average increase across the state overall remains modest. Or vice versa.

To use another example from the 2014 premium wars: When Maryland released its Obamacare rates, the state's spin was that premiums were 50 percent lower than what insurers had initially wanted. Critics preferred The Baltimore Sun's headline: "Premiums to go up as much as 25 percent under health reform." They were both right.

One carrier — Anthem — did file premiums 25 percent higher than what it charged for its pre-Obamacare plan in the state. So people who had Anthem, and chose to keep it, would pay 25 percent more, not counting any subsidies they might receive.

Anthem had about 3,300 customers in Maryland at the time of its rate filing, close to the number of people enrolled in the Kaiser Foundation's individual plan, which saw a 1 percent drop in premiums in the transition to Obamacare. In other words, roughly the same number of people faced a 25 percent increase as faced a 1 percent decrease. And all of them were free to choose a different plan. So neither of those results — the really bad one or the really good one — told the full story.

No one number ever does.