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Obamacare's double-digit rate hike, explained in 400 words

piggy bank

Obamacare premiums are on track to rise faster than ever before in 2017.

The Obama administration released data Monday showing that premiums for midlevel plans will rise, on average, 22 percent between 2016 and 2017.

Yes, that is a huge increase. Last year premiums went up by 7.5 percent.

Premiums are rising on the Obamacare marketplaces largely because the people who signed up for coverage were sicker than the insurance companies expected. This led some health insurers (like Aetna and UnitedHealth) to leave the marketplace. The insurance companies that stayed behind realized they’d have to charge higher premiums in order to cover their members’ medical bills.

What does this mean for Obamacare customers? Most Obamacare enrollees (83 percent) receive subsidies that limit the amount they have to spend on premiums. They only have to spend a certain percent of their income, and then the government will cover the rest.

These people will likely be somewhat insulated from the premium increases. But the premium hike could still be disruptive. These people might have to switch to a new plan if another insurer is offering a lower premium than the one they currently use.

But another 17 percent of Obamacare enrollees don’t receive premium subsidies. And these people are going to be in a really tough spot. They’ll need to decide whether they want to continue spending more to buy their same coverage — or if the insurance doesn’t provide enough value at the higher price.

What does this mean for the future of the law more generally? That’s really hard to tell right now — but there seems to be two plausible interpretations of the data.

One is that this is a one-time course correction. When Obamacare launched, premiums were much lower than analysts had expected. Insurance plans are now bringing their premiums more in line with expectations, and after they do that, they won’t have to make these big rate increases again.

The other is that this is the start of a series of higher rate increases for the health care law — that these new, high premiums might encourage some healthy people (especially those without subsidies) to leave the individual market. Subsides act as a powerful counter-balance to this second scenario, though, by capping enrollees’ contributions.

In either case, these numbers are bad news for Obamacare — we just don’t know how bad, exactly, the news is at this point.