California Officials Deliberately Mislead Public on Obamacare Rate Shock

Ever since Obamacare became law, I have been counseling states not to establish the law’s health insurance “exchanges,” in part because:

to create an Exchange is to create a taxpayer-funded lobbying group dedicated to fighting repeal. An Exchange’s employees would owe their power and their paychecks to this law. Naturally, they would aid the fight to preserve the law.

California was the first state both to reject my advice and to prove my point.

Officials operating California’s exchange–which the marketing gurus dubbed “Covered California“–recently and deliberately misled the entire nation about the cost of health insurance under Obamacare.

They claimed that health plans offered through Covered California in 2014 will cost the same or less than health insurance costs today. “The rates submitted to Covered California for the 2014 individual market,” they wrote, “ranged from two percent above to 29 percent below the 2013 average premium for small employer plans in California’s most populous regions.”

See? No rate shock. California’s top Obamacare bureaucrat, Peter Lee, declared his agency had hit “a home run for consumers.” Awesome!

Unfortunately, anyone who knows anything about health insurance or Obamacare knew instantly that this claim was bogus, for three reasons.

  1. Obamacare or no Obamacare, health insurance premiums rise from year to year, and almost always by more than 2 percent. So right off the bat, the fact that Covered California claimed that premiums would generally fall means they’re hiding something. 
  2. Obamacare’s requirement that insurers cover all “essential health benefits” will force most people who purchase coverage on the “individual” market (read: directly from health insurance companies) to purchase more coverage than they purchase today. This will increase premiums for most everyone in that market.
  3. Obamacare’s community-rating price controls (also known as its “pre-existing conditions” provisions) will increase premiums for some consumers (i.e., the healthy) and reduce premiums for others (i.e., the sick). So it is misleading for Covered California to focus on averages because averages can hide some pretty drastic premium increases and decreases.

What Covered California should have done was an apples-to-apples comparison, comparing the premiums that Californians are actually paying on the individual market today to the premiums they will have to pay under Obamacare. And even though premiums would come down for the sick, Covered California (and all other observers) should focus on how Obamacare will affect premiums for the healthy. Why? Because healthy consumers are the key to the entire enterprise. They are the ones who are vulnerable to rate shock. If they think the premiums are too high, they will pay the small penalty and wait until they are sick to buy coverage. If that happens, premiums will climb higher, more healthy people will drop out, and Obamacare will cause health insurance markets to collapse. Obamacare supporters are in a near-panic that young, healthy people won’t sign up for coverage, and with good reason. 

When others have tried to make the relevant apples-to-apples comparison, the results are strikingly different from Covered California’s portrayal. The Hoover Institution’s Lanhee Chen estimates that a 25-year-old male living in San Francisco might have to pay “anywhere from 38 percent to 53 percent more than he’ll have to pay this year for comparable coverage.” The Manhattan Institute’s Avik Roy crunched some numbers and found:

[T]he data that Lee released tells a different story: Obamacare, in fact, will increase individual-market premiums in California by as much as 146 percent… For both 25-year-olds and 40-year-olds, then, Californians under Obamacare who buy insurance for themselves will see their insurance premiums double.

That sounds like rate shock to me. And it’s pretty much what Covered California officials said they feared when they confided in federal bureaucrats six months ago.

But when it came time to speak to the public, rather than level with the public by using an apples-to-apples comparison, Covered California compared the Obamacare rates to average premiums for small-employer coverage. Why choose small-employer coverage as their basis for comparison? Precisely because small-employer plans already incorporate some of the costs that Obamacare imposes on consumers in the individual market. Small-employer plans already cover more of the additional benefits that Obamacare mandates (#2) and also incorporate a degree of community rating (#3). There’s no reason consumers on the individual market could not purchase those, ahem, “consumer protections” if they valued them. But they don’t, which tells us they don’t value them. So what Covered California’s bogus apples-to-oranges comparison actually tells consumers is, “See? Obamacare costs no more than this other expensive coverage you don’t want!”

Many in the media uncritically reported Covered California’s deliberate and self-serving misrepresentations. The Washington Post reported, “California Obamacare premiums: No ‘rate shock’ here… Now we have California’s rates, and they appear to be significantly less expensive than what forecasters expected.” At the New York Times, Paul Krugman gushed that “important new evidence—especially from California, the law’s most important test case—suggests that the real Obamacare shock will be one of unexpected success.”

One wishes the media could be a bit more skeptical of official government pronouncements.

All of that supports my thesis: officials at Covered California, like those running all the other Obamacare exchanges, owe their power and their paychecks to Obamacare. They will fight to preserve the law, even if they have to deliberately mislead the public.