Is there ACA rate shock in California?

I wasn’t going to weigh in on this, but enough of you have asked me what I think of Avik Roy’s claim that California insurance premiums, under ACA, will go up 64% to 146%.  Let me start by telling you this: based on a reading of the secondary commentary, I cannot tell you how much rates in California will be going up (and my original inclination was not to blog it for this reason).

Still, the question having been raised, let’s go back in time.  In 2009, the CBO wrote (pdf):

CBO and JCT estimate that the average premium per person covered (including dependents) for new nongroup policies would be about 10 percent to 13 percent higher in 2016 than the average premium for nongroup coverage in that same year under current law.

About half of those enrollees would receive government subsidies that would reduce their costs well below the premiums that would be charged for such policies under current law.

If you read their subsequent discussion, it seems fairly clear to me they are not averaging “higher premia for those still getting insurance” with “a price decline from infinity, for those who couldn’t get any insurance in the pre-ACA days,” in some kind of complicated index number fashion.  They are talking about price increases on already-existing policies and what kind of continuation one can expect.

I will treat this as the canonical estimate, and stipulate that we will have had “rate shock” if the percentage increases are three times higher than had been forecast by the CBO.

You will note that these higher rates still may be an efficient form of lump sum taxation, or they may be unsustainable price hikes which cause the mandate to unravel (read Will on this point) by encouraging non-participation, or perhaps a bit of both.  Megan McArdle considers some public choice implications of unpopular and unexpected high rates.

In 2009, you will find a claim by Jonathan Gruber:

What we know for sure the bill will do is that it will lower the cost of buying non-group health insurance.

Maybe he had in mind an index-number weighting where the “price decline from infinity” weighs heavily in the calculation and in that sense such a claim can always be true if even one person receives extra coverage.  Still, I am more likely to call it a misspoken sentence, a Denkfehler, an excess enthusiasm, and most of all a highly inexact way of describing the issue no matter what is the truth.  It was always the case that the median and modal individual premium was likely to go up, even with full political cooperation from the Republicans.  After all, that is part of the “efficient lump sum taxation” idea behind the use of the mandate in the first place.  And yes I do understand that a competitiveness effect and a transparency effect still may push prices down but that is not the way I would bet it and for sure it is not “for sure,” to quote Gruber, that such prices are going to fall.  (By the way here is an Indiana estimate of rate increases in the range of 70-90%; I can’t vouch for the underlying data.  It also seems that price declines are highly likely for New York state, in part because the current system has so many problems.  So we also need to be disaggregating the different states here.  Also, here is some informal poll evidence for a 30-40% rate increase at the individual level, with some higher increases for some other groups.  Caveat emptor, but those would be higher rates and they might even surpass the 3x standard I have set up.)

If you add in President Obama’s varied comments on the matter, I absolutely do see the real truth behind conservative and Republican complaints of “bait and switch.”  The median and modal cost of buying non-group health insurance is likely to go up, not down, and not everyone will enjoy the option of keeping the status quo, as had been promised.  And that whole matter is being given a different spin today than it was say in 2009.  On that Roy is entirely correct.

(In passing,  I see employer shedding of coverage as a greater danger to ACA at the macro level, so in my view it is a mistake to see too much of ACA as turning on this issue.)

On the other side of the debate, you will find criticisms of Roy here, here, here, here, and here, among many others.  At least two points of the critics seem to stick, first that these may be teaser (status quo) rates sampled by Roy and second we don’t know actually which individuals can end up getting those rates, once they fill out the questionnaires about the earlier medical histories.  But even there we are left with “we don’t know” more than “I have better numbers which show Roy to be wrong.”  The level of subsidies is relevant too.  I think also that Roy’s response undercounts the number of uninsurable people.  The worry is not that the market price for insurance is infinite, but rather at the prevailing market price one is simply paying one’s medical bills, plus a processing premium to the insurance company, rather than obtaining ex ante insurance.

To raise two other points critical of Roy’s position, first I am uncomfortable with putting so much emphasis on percentage rate increases, when some of these sums in question may be relatively small.  (I find the emphases in Megan’s presentation of the numbers more useful.)  I also think it requires a lot more argumentation to measure the number of “those who can’t get useful insurance” than by looking at the number of applications for the high-risk pools, even if that argument ultimately succeeds.

That all said, I find the screeds of most but not all of Roy’s critics to be inappropriate or in some cases beyond inappropriate.  It is disturbing how much space and emotional energy is devoted to attacking Roy, and to attacking conservative policy wonkery, relative to trying to calculate the actual extent of rate shock or possible lack thereof.  That is not how good policy wonks go about their job.

I think there is quite a good chance we will see rate shock, as I have defined it above.  I also think we still don’t know.  I also see rhetorical bait and switch from ACA defenders.  I also see that Roy is too quick to jump on possible negative information about the California rates without nailing down the case.  I also don’t think these are the most important issues for ACA, though they are issues worth discussing.

Overall this is not a debate which is going very well.


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