In addition to inspiring heated debate from both sides of the
Obamacare has become one of the most confusing
pieces of legislation
ever passed. With the difficulties in analyzing the law's
effects, every new development seems to raise more questions than
For months, a number of states have announced expected
premiums under their state health insurance exchanges, and in
most cases, the premiums under Obamacare have been decidedly
higher, inspiring opponents to declare the legislation a patent
failure. Yet this week, the state of New York came out and said
that its exchanges would cut premiums by more than half, leading
to proponents of health-care reform declaring the success of the
program. Which side is right?
Measuring from different baselines
The problem that objective analysts face in assessing Obamacare
is that everything depends on the baseline from which you start.
Every state's insurance environment is
, and so in judging savings under Obamacare, you're inherently
judging not only how well Obamacare does in establishing a
health-insurance framework but also how well the pre-Obamacare
framework did in providing low-cost care to those seeking
President Barack Obama delivers remarks on the Affordable
Care Act's Medical Loss Ratio Refunds. Source: White House.
For instance, one key variable that is much different from
state to state is the quality of insurance coverage offered under
pre-Obamacare plans. In states that allowed insurance companies
craft lower-priced coverage
by trimming benefits and imposing restrictions on coverage,
premium increases under Obamacare tend to be higher, because
Obamacare requires more comprehensive coverage that should lead
to a decrease in out-of-pocket costs. Indeed, major insurance
are probably choosing not to participate in some states'
health-insurance exchanges precisely because the required changes
in benefits will fundamentally change the health-insurance
landscapes in those states. That makes their profit prospects
less certain and their shareholders more nervous about the impact
the legislation will have on their bottom lines.
By contrast, in states that already required some of the same
things that Obamacare does, Obamacare exchanges are more likely
to produce premium savings, but they're also unlikely to have as
much savings on out-of-pocket costs because pre-Obamacare
insurance offerings already provided favorable benefits. They're
also less likely to lead insurance companies to change their
minds about offering coverage, because the nature of that
coverage isn't all that different under Obamacare.
Another important aspect of pre-Obamacare insurance is the
extent to which individuals actually obtained insurance under
pre-existing frameworks. In New York, for instance,
individual-coverage insurance has traditionally been extremely
expensive, providing a huge incentive for healthier individuals
to take the risk of going without insurance rather than paying
high premiums. The result was essentially a high-risk pool of
insurance policyholders who had no alternative. Insurance always
works better when there are more people to share the risk, and
the individual mandate under Obamacare will have a more positive
impact on premiums in states where individual participation in
pre-Obamacare insurance options was low.
Finally, no analysis of Obamacare health-insurance premium
costs is complete without understanding the impact of federal
subsidies on cost. With hefty redistributive impacts between
high-income individuals paying full cost while middle- and
lower-income households get varying amounts of subsidies, relying
on averages can hide the differences that families in different
financial situations will pay.
Don't believe the headlines
Whenever you see a claim that a state's premiums will go up or
down under Obamacare, your first reaction should be to look
beyond the headlines to see the assumptions that the claim is
making. Without considering both total cost and insurance
quality, you're likely to draw false conclusions from shallow
analysis of Obamacare's impacts.
The other place where people are still very confused about
Obamacare is in figuring out how it will affect
personal costs and your investment portfolio. On that score, we
can help, as The Motley Fool's special report "
Everything You Need to Know About Obamacare
" takes a 360-degree look at how the law may impact your taxes,
health insurance, and investments. Click here to grab
your free copy today.
Fool contributor Dan Caplinger has no position in any stocks
mentioned. You can follow him on Twitter: @DanCaplinger. The
Motley Fool recommends UnitedHealth Group. Try any of our Foolish
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