Do you win or lose under Obamacare? What you must know to see how you'll fare

Reuters

Article Highlights

  • There are some clear winners and losers under Obamacare.

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  • Some people end up paying more for their insurance than others. It all depends on what services people want coverage for.

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  • For all of the money we’re going to spend on Obamacare, you’d think more people would be made better off..

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If you’re one of the millions of people who’ve had their health insurance cancelled, or rates jacked up, will you be better off under Obamacare?

This is a question many people are being forced to ask, and many more will have to consider next year, as the same regulations forcing the termination of individual insurance policies prompt similar cancellations for small business plans next Fall.

There are some clear winners and losers under Obamacare.

Where you stand is likely to turn on your consideration of three issues related to your old health insurance coverage and the new Obamacare plans:

How much you value some of the new benefits offered by Obamacare relative to coverage offered by your old plan; whether it’s worth the added costs (and whether the federal subsidies will offset these expenses); and how much the new Obamacare plans will constrain your choice of doctors in exchange for those new benefits.

To figure out where you fall, first you’ll need to consider the differences in coverage offered by Obamacare and the private health plans that are now being terminated.

The president has continued to label the cancelled health plans — sold by commercial insurers like Aetna Inc (NYSE:AET), UnitedHealth Group (NYSE:UNH), Cigna Corp (NYSE:CI), and Wellpoint Inc (NYSE:WLP) – as “substandard” plans peddled by “bad apple” insurers. Yet Obamacare was modeled off these same plans.

Obamacare’s “bronze” plans import an identical structure of co-pays and deductibles as many of the “high deductible” health plans now being cancelled.

But Obamacare changed these policies in ways that create distinct tradeoffs.

In the private insurance market, people will often buy policies that tailor the coverage to their specific needs. So a young woman might buy a plan that covers maternity benefits. A family will buy a plan that covers pediatric care. And so on.

This lets people pay for the health care coverage that they think they’ll need.

But it also means that some people end up paying more for their insurance than others. It all depends on what services people want coverage for.

When the president crafted Obamacare, he wanted to mandate a uniform set of coverage, and costs. The political goal was to make sure everyone had exactly the same set of benefits. It wasn’t that the president figured that elderly people might need maternity coverage, or that single men needed insurance for pediatric dental care. There was a deeper political philosophy behind the Obamacare scheme.

It was to spread the cost of health care uniformly across all consumers. By forcing every policy to offer the same set of benefits (even if consumers neither wanted nor needed certain coverage) it made sure that the price of any one individual’s health care was borne equally by everyone.

This was the essence of the law’s egalitarian roots. Nobody paid more than someone else because they needed a certain set of benefits. Everyone would be forced to pay for everything, equally.

Viewed from the Obama team’s political lens, a plan that doesn’t fulfill this egalitarian model is by their virtue “substandard.” It’s a quaint principle.

But viewed from the standpoint of a consumer who is forced to subsidize benefits they neither want, nor need, it’s a costly way to fulfill the President’s political fashion. That gets to the issue of cost. In the end, President Obama’s political ambition raises the cost of basic coverage to everyone. These plans are not cheap.

Most of those added cost comes two factors, in particular.

The first is that requirement that every plan must cover every service that any insurance plan might be asked to offer. The second factor is the “age-based rating.”

Before Obamacare, premiums charged to the oldest beneficiaries were often 6 or 7 times more expensive than premiums charged to the youngest consumers.

Insurance was priced this way because older people ended up using more health care services. Under Obamacare, the law says that insurance premiums charged to the oldest consumers can’t be more than 3 times what is charged to the youngest, healthiest consumer. This is how Obamacare uses young consumers to subsidize the cost of coverage for older Americans.

The Obamacare plans are so costly as a consequence of this political re-engineering of health insurance that the scheme requires that consumers be subsidized to make the plans affordable.

Even upper middle class families are getting subsidies. The problem is that for many people; the subsidies aren’t rich enough to make the cost of these new plans comparable to the prices they were paying previously.

Whether your rates go up or down depend on where you fall on the income ladder (and the total amount of the government subsidies you’ll receive). This is a key variable to measure whether you’ll be better off, or not, under this new scheme.

For many people, the new Obamacare plans will be very pricey, even with the benefit of the subsidies. By my calculation, unless you earn below 250% of the Federal Poverty Level (about $60,000 in annual income for a family of four, or $30,000 for an individual) than the subsidies are not generous enough to offset the higher cost of the premiums. For many liberals, this outcome may be just fine.

These economics are the law’s progressive epicenter. Obamacare isn’t just an insurance scheme. It’s also an exercise in redistribution.

If you find yourself above 250% of the FPL, you may do better financially by shopping outside the Obamacare exchanges for the cheapest plan you can find. The coverage may be much skimpier than the plan you might have had last year, but it will be more affordable than what you’d be forced to buy under Obamacare.

If you are below these income levels, the amount of subsidies you’ll get inside the Obamacare exchanges will probably offset the higher cost of the premiums you’d be forced to pay. Also, if you have a chronic illness and know you’ll be accessing a lot of medical care, you’ll probably do well buy buying a gold or platinum plan inside Obamacare (if you can afford the premiums).

Since you know you’re likely to access the medical care, you might as well take advantage of the government subsidy (and also spread your higher health care costs on onto other consumers). Older people are also likely to find better deals inside Obamacare than outside the scheme.

The subsidies aren’t free, of course. They’re paid for by taxes. Obamacare is estimated to cost us all $2.6 trillion over the next 10 years.

Finally, there is the issue of access. The higher cost of Obamacare gets directly to the considerations you’ll need to make about your access to doctors and hospitals.

Subsidies alone won’t make up for the costly regulations that Obamacare imposes on the resulting health plans. To keep premiums low, the president also had to change the insurance product to depreciate it in certain ways at the very same time that he tried to broaden the benefits that it would cover.

To try and tamp down on costs, the Obama team made a deliberate tradeoff: more benefits, but fewer doctors. To keep costs down, the choice of doctors people will have under Obamacare is going to be narrowed considerably.

This is how the health plans are being asked to pay for these expensive mandates. By cheapening the networks of doctors that they use.

This is also one significant reason why the Medicaid managed care plans such as Molina Healthcare (NYSE:MOH) have been some of the most active participants in the Obamacare exchanges. Their experience servicing the Medicaid market also gives them proficiency maintaining cheaper networks of providers.

Remember, inside Obamacare, you’re likely to end up with a plan that offers a much more limited choice of doctors, and charges very high “co-insurance” if you decided to go outside your health plans network, and see an unapproved physician.

These are the tradeoffs that Obamacare forces consumers to consider.

Even the working poor, who will get government subsidies that will make the Obamacare premiums cheap (and in some cases, even free) may reject the narrow choice of providers that these Obamacare plans will offer them.

For the solidly middle class and upper middle class, whether you win or lose under Obamacare will turn on a complex set of considerations.

But for all of the money we’re going to spend on Obamacare, you’d think more people would be made better off by this scheme. The program is going to leave a lot of losers for each person who comes out ahead. It didn’t have to be this way.

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