The Next Big Health-Care Issue

This was published as a Wall Street Journal Think Tank column on May 12, 2014.

The next big brouhaha for the Affordable Care Act will be how much premiums go up in the non-group insurance market. Premiums for 2015 are starting to be released by state insurance departments as insurers submit them and will continue to dribble out over the year. Here are two things to keep in mind as this issue unfolds:

First, 85% of those who purchase insurance in the new marketplaces will get a government subsidy in the form of a tax credit to help defray the cost of the premium. That means that most people buying in the exchanges won’t pay much even if their premium cost goes up significantly. Here is an example.

“Fred” is a 35-year-old who lives in Miami and makes $27,000 a year. He picked the second-lowest-cost “silver” plan on HealthCare.gov this year and his premium was $3,089. But he qualified for a government premium tax-credit subsidy that lowered his required payment to about 7.5% of his income, or roughly $2,000. If insurers in Miami raise premium costs by double-digit percentages, the premium in Fred’s plan could go up by hundreds of dollars. However, because Fred is eligible for a subsidy, he would still pay almost the same amount, assuming his income does not change.

Now, there are millions who buy coverage on their own outside the exchanges–we don’t yet know the exact number–and they do not get a tax credit. But about 6.8 million of the 8 million people who enrolled in the exchanges will get a subsidy. Of course, when premiums rise sharply the government and taxpayers pay more for people’s tax credits. That’s the big reason rising premiums in the marketplaces are a problem.

Second, premium increases will vary a lot across the 501 Affordable Care Act premium rating areas, which basically coincide with counties. Republican critics are sure to seize on the largest increases and Democrats will respond with smaller ones. How will news organizations handle this? Will they report the political food fight or the range of increases across the nation or in their state? Depending on how the media report this story, Americans will get very different impressions of what is going on.

It’s not too soon to focus on this next big ACA story so that we put it in perspective when it breaks.