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Obamacare's sticker shock is real, but it's not as bad as advertised

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What did the Affordable Care Act really do to the cost of health insurance? The question is harder to answer than it sounds.

new study published this week in the National Bureau of Economic Research is arguably the best effort to date. The study, conducted by one of the top-regarded health economists, suggests that the law did create some modest "sticker shock" for those buying their own coverage.

But that's also before taking subsidies into account, and it's mostly because insurers anticipated that their enrollees would be sicker — and thus, more expensive — after Obamacare.

Obamacare upended the individual insurance market

The populations that bought health insurance before Obamacare — and those that purchased health insurance afterwards — are incredibly different. So are the insurance plans themselves.

Before the ACA, health plans had tons of discretion on what they could offer as health insurance — and who they would let purchase their products. In most states, insurers charged sick enrollees higher premiums than healthy people — or worse, insurers could deny them health coverage altogether.

Obamacare changed the individual market in at least two major ways. First, it required insurers to accept all customers and not charge them different rates based on their health status.

Second, it also required insurers to cover a suite of "essential health benefits," which includes ten broad categories like hospital visits and preventive care. The essential health benefits include some medical services, like maternity care, that some individual market plans often left off because it drove up premium rates.

Letting sick people into the market and increasing the number of benefits that insurers have to cover are both changes that could drive up prices for those who were already buying insurance prior to Obamacare.

What the new paper from University of Pennsylvania's Mark Pauly attempts to do is figure out how much, exactly, Obamacare changed prices for existing consumers — and what specifically drove those changes.

Early attempts to estimate Obamacare's "sticker shock" were messy.  They often looked at some of the cheapest plans that were available prior to health reform; those cheap plans were often less comprehensive that today's exchange plans — they could cover far fewer benefits, so comparing them didn't make much sense.

More comprehensive care is not without value. "Any analysis of the change in premiums should at least recognize that more comprehensive coverage pays for more medical costs," Pauly — a conservative — writes.

Total insurance costs probably went up by 14 to 28 percent on average, before subsidies.

There is a national survey conducted each year that collects information about how much people spend annually on health care, counting both monthly premiums and out-of-pocket expenses (like the deductible and co-payments required at doctor's visits). The authors used that — along with information like age and sex — to figure out how health reform changed the cost of insurance. The authors focused on California and the states who opted to use, instead of setting up their own exchange.

Overall, they found that total insurance costs — including premiums and any out-of-pocket spending — went up between 14 and 28 percent as a result of the Affordable Care Act. Before subsidies, this translates to an average monthly increase of $58 to $118, depending on the type of plan (bronze or silver).

According to the authors, this change "is not as large as many of the estimates from opponents of the ACA, but is very likely to represent a moderate increase on average if former buyers choose the lowest premium options in exchanges."

Why did the cost of insurance go up?

On balance, the authors suggest that the hike is attributable to insurers expecting an influx of sicker enrollees. Health reform makes insurance easier to obtain for sick people. The new insurance rules means that cost gets spread around across the sick and the healthy, so when enrollees get sicker overall, prices go up for everyone.

The other factor that might have driven up prices — the essential benefits package — doesn't seem to have played a major role. This new paper finds that the generosity of the insurance benefits offered before Obamacare was roughly similar, on average, to the medium-level plans on today's exchanges. And that suggests the change in who's enrolling in insurance — not the richness of those insurance benefits — is driving the rise in prices.

The federal subsidies matter a lot

This particular paper paper doesn't consider the impact of subsidies, though — and, according to newly-released HHS data, about 87 percent of individuals shopping on are receiving these subsidies. Among subsidized singles, the average monthly premium is just $82.


The climb in prices is smaller than previously anticipated by Obamacare's detractors — smaller, even, than findings in a report released Wednesday by the conservative Manhattan Institute, which alleges an average rate increase of 49 percent. Narrower analyses, and stories trotted out in the media, are likely to paint different pictures. But they won't be representative of the big picture, as Pauly's study aspires to be.

Subsidies should blunt the price increase for a majority of enrollees. However, the minority of shoppers who don't receive subsidies — and those who purchase insurance outside state exchanges, where subsidies can't be applied — are more vulnerable to the changes.