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Experts Say Rate Shock Not Likely Under State Exchanges

By Elham Khatami, CQ Roll Call

August 13, 2013 -- The assumption by some insurers, state officials and Americans shopping for coverage that premiums under the health care law will skyrocket compared to current prices is unfair, some experts said last week.

Insurance rates under the state exchanges that open for enrollment on Oct. 1 will not necessarily result in a rate shock, Uwe Reinhardt, an economics and health policy professor at Princeton University, said during a recent webinar hosted by the Alliance for Health Reform.

Reinhardt said the 2010 health care overhaul's switch from medically underwritten premiums to community rated premiums could lead to higher rates for healthier, younger people. But sicker, older individuals will pay lower premiums.

"They will experience premium joy," Reinhardt said, referring to older Americans. "That's why it's not fair to talk about a premium shock all the time."

Under community rating, people cannot be charged different rates based on their health status. This form of premium setting, Reinhardt said, depends on healthier, younger individuals joining insurance risk pools.

"If most young people don't join it, then you will have a sicker risk pool and that will drive up the community premium," he said.
Several states have reported "reasonable premium levels" so far, said Linda Blumberg, a senior fellow at The Urban Institute, who specializes in private health insurance.

"Premium rates are coming in generally lower than expected," she said, citing a July 2013 brief by Health and Human Services's assistant secretary for planning and evaluation. That report highlighted rates released by 11 states, including California, Colorado, the District of Columbia, New Mexico, New York, Ohio, Oregon, Rhode Island, Vermont, Virginia and Washington.

In those states, the brief said, the lowest cost silver plan in the individual market is an average of 18 percent less expensive than the Congressional Budget Office had predicted.

Blumberg added that large majorities of exchange enrollees will have incomes that qualify them for tax credits, thereby limiting premiums to a fixed percentage of their incomes. She said that many factors must be taken into consideration when analyzing premium costs.

"It's not just the premium that people should be thinking about," Blumberg said. "They should be thinking about the out-of-pocket expenses, as well." Even though premiums may be higher, the essential benefits covered under the health law (PL 111-148, PL 111-152) mean people will see more of their medical expenses paid for and that could lower their out-of-pocket costs.

Congressional Republicans and other health law critics have repeatedly raised the specter of premium rate shock. They say the public needs to know what premiums will be before the open enrollment for exchanges begins on Oct. 1, particularly if rates are going to be a lot higher so they have time to prepare.

While a smattering of states have released their rates, not all of them have and the federal exchange, which will serve the majority of states, will not post its premiums until September.

Last week, HHS secretary Kathleen Sebelius challenged claims by some state officials that premiums will soar. She said in a telephone briefing updating reporters on health care law implementation that "erroneous information is being advanced as if these are the final rates available in the marketplace and this is what consumers will be paying and that's just not accurate."

While the secretary did not mention specific states, officials in Indiana, Ohio and Georgia recently have indicated that rates will soar for their residents in the insurance marketplaces. Those states have all opted out of creating their own exchanges and will instead rely on the federal exchanges.

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