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What’s the Real Story with Health Insurance Premiums in California?

A few weeks ago, I posted a link to Forbes contributor Rick Ungar’s article on the newly-announced health insurance premium rates in California. All eyes were on the Golden State as a potential harbinger of costs under the state health insurance exchange programs that launch under the Affordable Care Act in 2014. Ungar was optimistic about the results. He quoted a vice president of the Kaiser Family Foundation:

“The premiums and participation in California, Oregon, Washington and other states show that insurers want to compete for the new enrollees in this market,” Gary Claxton, a vice president at the Kaiser Family Foundation, said via e-mail. “The premiums have not skyrocketed and the insurers that serve this market now are continuing.  The rates look like what we would expect for decent coverage offered to a standard population.”

AIS’s John Barry then alerted me to an article that offers a very different perspective on the news from California. Forbes contributor Avik Roy argues that state insurance exchange plans will be up to 146 percent more expensive for younger people in California. He arrives at this conclusion by comparing future premium rates for people who purchase insurance for themselves with current rates from eHealthInsurance.com. Roy says:

If you’re a 25 year old male non-smoker, buying insurance for yourself, the cheapest plan on Obamacare’s exchanges is the catastrophic plan, which costs an average of $184 a month. (By “average,” I mean the median monthly premium across California’s 19 insurance rating regions.)

The next cheapest plan, the “bronze” comprehensive plan, costs $205 a month. But in 2013, on eHealthInsurance.com (NASDAQ:EHTH), the median cost of the five cheapest plans was only $92.

In other words, for the typical 25-year-old male non-smoking Californian, Obamacare will drive premiums up by between 100 and 123 percent.

Roy’s post set off a heated online debate. A Wall Street Journal editorial agreed with Roy’s analysis, concluding, “Americans are being forced to buy more expensive coverage than what they willingly buy today.” On the other hand, the Washington Post’s Ezra Klein said that Roy’s article was misleading, since the eHealthInsurance.com premium rates are quotes. Some people are denied those rates and must pay higher prices.

If you’re feeling confused by now, I’m right there with you. Other truth-seeking souls asked economist Tyler Cowen, who often functions as a wise man on the hill in these kinds of debates, to weigh in. Here’s his take:

I think there is quite a good chance we will see rate shock [...] I also think we still don’t know.  I also see rhetorical bait and switch from ACA defenders.  I also see that Roy is too quick to jump on possible negative information about the California rates without nailing down the case.  I also don’t think these are the most important issues for ACA, though they are issues worth discussing.

Overall this is not a debate which is going very well.

What’s your interpretation of the debate on future health insurance costs? What news outlets or experts do you think are offering trustworthy analyses of the facts?

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