Re-posted with permission of Columbia Journalism Review where this article originally appeared on June 14, 2013
First came the good news from the West Coast about how Obamacare will be lowering premiums for individuals shopping in the new state exchanges. Never mind that in California the official folks at the exchange, who are supporters of health reform, mixed apples and oranges to reach their conclusion that rate shock had not materialized. Now come the official folks in Ohio, who, by the way, are not big Obamacare supporters, warning Buckeye State consumers that "insurers expect the cost to cover healthcare expenses for consumers will significantly increase." Never mind that their predictions are based on what insurers have told them their "costs" will be--not on the actual premiums they plan to charge.
The Ohio Department of Insurance explained its thinking in a press release :
While those costs do not specifically track with the premiums insurers charge individual customers, it is expected that these increases in costs will also translate to significant premium increases for many Ohioans.
Question: If the state isn't exactly sure what these "increases in costs" mean in terms of dollars and cents in premiums, why did it issue a press release and hold a news call with reporters? The answer, according to the press release, was to "help health insurance consumers continue to prepare for the expected price increases." But the Department's real message seemed to be that insurers have no choice but to simply pass on some unidentified and unspecified costs.
A question the press might have explored: What costs? As I've explained recently, insurers consider lots of factors in determining premiums. These include the cost of medical services, how much more they can charge older people than younger ones, where policyholders live, how tough a state regulates them, what the competition looks like, their expenses in selling the policies--and the profits they'd like to earn. When actuaries mix these elements together, they arrive at a price, or a premium, that they hope will be low enough to entice shoppers to buy their products.
The Associated Press and The Columbus Dispatch picked up on the "analysis," and the AP's piece effort got a lot of pickup. Neither story was a model of clarity. It's fair to ask what Ohioans got from this reporting. Probably not much, except maybe another helping of confusion.
The AP story started with the department's thesis--that insurers' costs of covering Ohioans in the insurance shopping exchange (which will be run by the feds in Ohio, since the state opted out of running its own exchange) would be "significantly higher." The second graph continued:
That means individuals should also brace for potentially higher costs when purchasing coverage through the new insurance marketplace created by President Barack Obama's healthcare law, state officials said.
The third graph told readers that the state did not look at actual premiums, however. The fourth reported that Lt. Gov. Mary Taylor, a Republican who is also the director of the insurance department, noted that specific premiums will vary and could change when the state reviews them, but that "premiums will track very closely with the cost."
Taylor also said that benefits required by the law are "much richer" than the benefits previously available to Ohio consumers. What the heck did that mean to readers? And was that the reason for these higher costs? The AP didn't really explain, but did throw out some numbers, telling readers that "projected costs to the companies for providing the required health benefits under the law ranged from roughly $283 to $577 for individual plans." But for which plans--the bronze, the cheapest type offered in the exchanges; the silver plan; the gold plan; or the most expensive platinum plan, where coverage is top-notch. And who do these "costs" apply to--20 year olds? Or, 30, 40, or 60-year-olds? Numbers tossed out like confetti mean nothing without specifics.
At the end of the piece, the AP repeated what has become almost a standard graph in these kinds of stories: Young, healthy people will get rate increases, but older people will see rates decrease, leaving readers to think 60-year-olds will pay lower premiums than 25-year-olds. They won't. Older consumers will pay more--sometimes much more in absolute dollars.
The Columbus Dispatch piece was confusing, too. Its lede:
Health insurance companies would incur an average 88 percent increase in costs next year to pay for the health care of Ohioans who buy individual policies.
The paper explained that individual Ohioans wouldn't see their premiums increase that much, partly because many would get tax credits to help pay premiums. Indeed they will, but it's also highly unlikely a company would increase rates that much either. A look at the list of rate increases requested by Ohio insurers over the last couple of years for individual market policies show high increases, but nothing even close to approaching 88 percent. Most increases were in the teens and low twenties.
Still, the paper told readers that
the average cost for insurers would be $420 per month--an increase of 88 percent
from $223, which the paper said was the "current average cost to cover medical
expenses for an individual health-insurance plan."
As noted, medical expenses are not the only thing that goes into the pricing mix. And the new policies sold in the exchanges will not be the same as policies sold last year--a point that Taylor did make to reporters. Her comment should have been a clue that a comparison isn't really possible, and especially a comparison as misleading as one that draws inferences only from unspecified costs.
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