By Chad Terhune
10:00 AM PDT, March 28, 2013
The federal healthcare law will help cause insurance premiums to rise 30% on average for many middle-income Californians next year, but lower-income consumers could save up to 84%, a new government report says.
Covered California, the state agency that commissioned the report issued Thursday, said federal subsidies and decreases in out-of-pocket medical expenses should offset most of the higher premiums for people buying their own health coverage.
Officials said about 570,000 Californians who have annual incomes between 250% and 400% of the federal poverty line and have individual policies now will pay 47% less, on average, due to federal subsidies.
These state estimates offer the first detailed look at how healthcare costs may change for millions of Californians next year and the various factors that will affect families' overall medical expenses.
The affordability of coverage will play a pivotal role in whether California can successfully implement President Obama's Affordable Care Act and reach the goal of extending coverage to many of the state's 5.6 million uninsured residents.
Even supporters of the federal overhaul have expressed concern that the government requirement for richer benefits and new consumer protections will drive up premiums too high.
“It is critical for us to understand the true financial impact on Californians as we move toward 2014, and this is an important step in determining strategies to help protect consumers from cost increases,” said Peter Lee, executive director of Covered California. “There may be increases in premiums depending on what product people buy.”
These changes would most immediately affect the 2 million Californians who purchase their own coverage and the state’s uninsured residents.
This analysis by the Milliman consulting firm did not look at premiums for the 19 million Californians who receive health benefits from larger employers. The federal law has a smaller effect on those plans.
Next month, health insurers must submit their proposed rates to the state for coverage starting Jan. 1. Covered California plans to select certain companies for its state-run exchange and negotiate rates by mid-
May.
Insurance industry officials said they support the state's efforts to expand and improve health coverage, but those changes carry a price.
“These richer benefits, more predictable coverage and subsidies come at a cost,” said Patrick Johnston, president of the California Assn. of Health Plans. “All these expansions add to the already increasing cost of care.”
In California, individuals earning up to about $16,000 will qualify for an expansion of Medi-Cal, the state's Medicaid program for the poor and disabled.
Beyond that, people and households earning up to 400% of the federal poverty level are eligible for federal subsidies. That income threshold goes up to about $46,000 for an individual and $94,000 for a family of four.
Without subsidies above those income levels, the report said, consumers face 30% higher premiums and a 20% increase in their total cost of medical care when lower deductibles and cost sharing are factored in. Families earning less than $60,000 a year fare much better, in line to save 84% on premiums and 76% on the total cost of their care.
Age is another dividing line. The report estimates that young people under 25 could incur premium increases that are 25% higher than average, while older consumers could face a smaller increase, of 12%, under new limits on how much rates can vary based on age. Milliman said younger consumers stand to earn less and many will qualify for subsidies that help mitigate higher rates.
Absent any changes from the federal law, Milliman said individual premiums in California would increase 9%, on average, in 2014 due to rising medical costs and other factors.
In January, most Americans must purchase health insurance or pay a penalty under the federal law.
The Milliman report attributed much of the cost increase overall to the new guaranteed coverage for all applicants, including sicker patients who were previously denied insurance. Adding those higher-cost policyholders is expected to increase medical costs.
New federal requirements that individual policies cover a higher percentage of overall medical costs and include 10 “essential health benefits,” such as prescription drugs and mental health services, also contribute to higher costs.