Confused by Obamacare? Here are answers to key questions.

“Most people today can find a plan for less than $75 a month at the HealthCare.gov marketplace when you include the tax credits that government is giving you.”
— President Obama, remarks on the Affordable Care Act, Miami, Oct. 20

“It’s just been announced that Americans are going to experience another massive double-digit hike. Now, they said 25 percent.”
—Donald Trump, remarks in Sanford, Fla. Oct. 25

Four years ago, when President Obama predicted that the Affordable Care Act would result in lower health-insurance premiums, we gave him Three Pinocchios. The “Obamacare” law had not been fully implemented yet, but we reviewed nearly 10 reports from states across the country on the potential impact of the law and concluded the law’s provisions “will almost certainly increase premiums, though tax subsidies will help mitigate the impact for a little over half of the people in the exchanges.”

As we noted then, you can’t get something for nothing. The law mandated an “essential health benefits” package, more extensive than what most individuals and small businesses already purchase. The law also implemented an age band so that the amount an older individual pays will be no more than three times what a younger individual pays — and also mandated that insurers selling policies through the health exchanges will no longer be able to charge different premiums based on a person’s health status when coverage is first purchased.

One of the state reports we reviewed warned of the concern for “rate shock to a material part of the population.” It added: “The individuals who currently are qualified for preferred rates will be seeing large increases in their healthcare premiums if they do not qualify for premium subsidies.”

So, on one level, we shouldn’t be surprised that premiums for the policies sold on the exchanges are going up an average of 22 percent in 2017. But on the other hand, there continues to be mass confusion over the law and who it affects.

Trump, for instance, said that “Americans” are going to experience a double-digit price hike. That’s wrong. The number only affects the relatively small number of Americans who buy their own insurance and do not get a tax subsidy. On top of that, the rate increases vary greatly depending on the locality. Indianapolis is supposed to see a decrease (from $298 a month to $286) — while Phoenix will experience a 145 percent increase (from $207 to $507).

Here are some answers to basic questions.

What is Obamacare?

The ACA mandated some broad changes to the health-care market, including cost savings in Medicare. But, according to the Congressional Budget Office, most Americans (155 million) get their insurance through their employer and thus far would have noticed little if any change, except that their benefit package may have gotten better. Premiums in those plans have increased year after year, as they always have, but at a slower rate than in the 10-year period before 2010. (It’s debatable whether the health-care law is responsible for the slowdown in health-care costs, but the White House makes that case.)

The premium increases in the news have to do with the 22 million individual and small-business policies sold on the exchanges or directly to consumers. That’s significantly smaller than the employment-based market — one-seventh the size.

Why are premiums increasing?

The Obamacare market is under pressure because the mix of people signing up for health care under plans offered on the exchanges has been unhealthier than expected. The feared individual mandate has not had the expected result of convincing people to buy insurance, with younger and healthier Americans apparently more willing to pay a $695-per-person fine than sign up for health care they think is too costly. So the mix of people in the insurance pools have tended to be people who have chronic illnesses and thus require more care and frequent doctor or hospital visits. The risk pools are also why insurance companies have sought higher premiums and the biggest deductibles.

A stable insurance market requires the premiums of low-risk people to help defray the cost of high-risk individuals. No one makes money selling insurance only to sick people; imagine if an auto insurance company only sold insurance to drunk drivers. So in a blow to the exchanges, some major insurance companies have pulled out of the market because they say they are losing too much money. That has reduced competition, in some cases just leaving one insurance company in the market.

What’s the tax subsidy?

Employers generally subsidize a large part of the monthly premium for their workers. Obamacare was designed to replicate that system for poorer workers, with the government footing the bill, to encourage more people to seek health insurance. (Medicaid, the health program for the poor, was also expanded but 19 states refused to adopt it.) You need to buy a policy through the exchanges in order to qualify for a subsidy — and most of the people on the exchanges get some sort of subsidy.

That’s why Obama claims that most of the people on the exchanges can find a policy for $75 a month. Advance payments of tax credits help shield many participants in the exchanges from sharp premium increases because the law establishes the share of income that households are expected to pay.

In theory, people who qualify for tax credits are not affected by the premium increases. Remember the planned increase in Phoenix from $207 a month to $507? An analysis by the Henry J. Kaiser Foundation found that a 40-year-old adult making $30,000 per year in Phoenix would have paid $207 in 2016 for a “silver plan” policy — and would pay the exact same amount, after tax credits, in 2017. In other words, the draconian 145 percent increase would be borne by the government, not the person buying the policy.

A 2016 Commonwealth Fund study found that for people with low and moderate incomes, the Affordable Care Act’s tax credits have made premium costs roughly comparable to those paid by people with employment-based health insurance. About half of the adults in the marketplace said their premiums were affordable — and four out of five people who joined the marketplace or Medicaid after the law was implemented said they were satisfied with their health insurance. (About half of the adults said that before they signed up, they had been without health insurance for more than two years.)

So who is affected by the premium increase?

People who do not qualify for the tax subsidy. That’s what Bill Clinton was talking about when he said it was “a crazy system.” Subsidies phase out as income increases, and that means a steep cliff for some folks.

Research by Avalere, a health-care consulting firm, shows that participation in the exchanges declines dramatically as incomes increase. More than three-quarters of eligible individuals with income at 100 to 150 percent of the federal poverty level (FPL) are enrolled in exchange plans, but just 41 percent of those with income between 151-200 percent FPL. Only 2 percent of those making over 400 percent of FPL participate.

A Health and Human Services report released in October said that about 2.5 million people who do not buy insurance on the exchanges — either because they think they do not qualify for tax credits or for philosophical reasons — have income that could qualify them for tax credits. About half of this population even have incomes below 250 percent FPL, meaning they might also qualify for help with their deductibles and other out-of-pocket expenses.

All told, that means nearly 12 million people in the individual market potentially qualify for tax credits. But it also means that, no matter what, 6 million people have to pay full rates for insurance and are being hit by the premium increases. [Update: Here’s a good first-person account.]  (Some of these people actually have incomes low enough to qualify for Medicaid, although they may live in a state that refuse to accept the Obamacare expansion of the health-care program for the poor.)

In any case, right now about half of the people in the individual market are getting a subsidy — and the other half are being hit with increases, in some cases quite high. But, to put it in context, the number of people affected by the premium increase is just one-fourteenth the size of the employment-based health-insurance market.

Obama, in his recent speech on the Affordable Care Act, acknowledged this problem. He said the law should be expanded to provide tax credits to more middle-income Americans, which also presumably would improve the risk pool and reduce upward pressure on premiums. He also called for a public option — essentially government-provided health-insurance like Medicare, but for people younger than 65.

The Bottom Line

It’s important not to conflate “Obamacare” with the entire health-care system. The law was intended to provide additional options in the individual market for people who could not afford health insurance. Most people on the exchange get tax credits that mitigate the cost of premiums, which has resulted in a substantial decrease in the number of Americans without health insurance. Those people are mainly the winners in Obamacare.

But about half of the people in the individual market are not getting such tax credits — and their premiums are increasing because of mandates in the law, a sicker-than-expected pool of applicants and decreasing competition because insurance companies have found it too difficult to make money. These people are the losers, at least so far.

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