The Affordable Care Act's Surprisingly Low Premiums

As implementation of the Affordable Care Act ramps, up two unexpected developments have been in the news. Some health plans look to be offered at a cost well below that predicted. This is good news and bad news.

The good news is that California's Insurance Exchange, called Covered California, has released its prices. It will be offering plans for 2014 at an unexpectedly low cost. This is because the Exchanges, which were designed to create a competitive marketplace for health insurance are actually functioning like a competitive marketplace. Consumers can choose between four levels of plan: bronze, silver, gold or platinum. The more  the plan costs up front, the lower the out-of pocket expenses will be. All the insurance companies offering bronze plans have to include the same types of services for those plans. All the silver plans have to be comparable to each other, and so on. Now that plans can actually be rated in a simple and transparent way, there is an incentive for insurers to bid low and compete against each other to gain market share.

Covered California is offering low rates despite expectations that premiums under Obamacare were going to rise. A widely reported study by the Milliman Company predicted that while older Americans aged 40-59 should see lowered costs, younger males would see their cost go up. A 28-year-old man making $50,000 a year, for example, had been expected to pay as much as $450 a month for a silver plan. The actual cost in California is going to be around $250 a month. This is comparable in cost to high-deductible plans on the private insurance market right now which offer much-less comprehensive benefits.  All plans purchased through Insurance Exchanges must cover at least 60% of the patient's costs, including co-pays and deductibles. California residents who buy through Covered California are going to get a good deal.

The same can't be said for all low-wage workers at large companies. Christopher Weaver and Anna Wilde Matthews at the Wall Street Journal recently reported that some companies with large numbers of service workers have been worried about the cost of the ACA's requirement to offer those employees health benefits. They are said to be in talks with insurance companies to craft new plans that will be very cheap, in the order of $40 a month, but will offer extremely limited coverage. Hospital stays, surgery and prenatal care will be excluded.

These firms are hoping to find a loop-hole in the law that allows them to offer low-benefit plans (termed mini-meds or "skinny plans" in insurance industry lingo).  Since most large firms offering insurance to their employees actually offer good plans in order to retain workers (think Google), big companies have been allowed to choose their own plans. The Department of Health and Human Services didn't anticipate that offering skinny plans  might be the way that some companies would try to lower premium costs.  It is unlikely that they will be allowed to, but watch this space for further developments.