Insurers Increase Taxpayers’ Costs in Obamacare Exchanges

10750151_MLIn the latest budget update, published in March, the Congressional Budget Office estimated 10 million people would be enrolled in taxpayer-subsidized Obamacare health plans with a total subsidy (via tax credits) of $32 billion this year. That would amount to an average subsidy per enrollee of $267 per month.

In April, analysts at the government agency running Obamacare reported the average Obamacare subsidy will be $280 – $13 higher than CBO estimated. That may not be a big deal, but what is interesting is how much more of the cost of Obamacare has been shifted onto taxpayers in the program’s third year.

According to the same government agency, the average Obamacare exchange premium increased from $346 in 2014 to $386 this year. That comprises 12 percent growth over two years. The average tax credit subsidizing coverage increased from $264 to $280, or just six percent. Therefore, the average net premium increased from $82 to $106, or 29 percent.

However, when we look at each year individually, it is clear insurers have learned how to shift more costs to taxpayers. The change in gross premium from 2014 to 2015 was ten dollars per month, or three percent. The tax credit actually declined by ten dollars, or four percent. So, the net premium increased by $20, or 24 percent.

People were unhappy. So, this year, the average gross premium increased by $30, or 8 percent from 2015. However, the average tax credit increased by $26, or four percent. The net premium, therefore increased only $4, or four percent.

Despite gross premiums growing three times faster in 2016 than 2015, Obamacare beneficiaries will actually see a significantly less painful increase in the net premium they have to pay. Taxpayers are shouldering a higher share of Obamacare’s costs.

Accident? Probably not. Obamacare’s tax credits are based on the lowest-cost Silver plan in a region. The same subsidy will result in a very different net premium if a person chooses Bronze, Silver, Gold, or Platinum. The evidence suggests insurers have learned quickly how to design their “metal” plans to drive enrollees towards plans with the highest share of premium borne by taxpayers.

I expect this will continue, and the Congressional Budget Office’s cost estimates continue to be too low.

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For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.

John R. Graham is a former Senior Fellow at the Independent Institute.
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