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Why Obamacare's State Rate Changes Are Misleading

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In addition to inspiring heated debate from both sides of the health-care issue, Obamacare has become one of the most confusing pieces of legislation ever passed. With the difficulties in analyzing the law's effects, every new development seems to raise more questions than it answers.

For months, a number of states have announced expected premiums under their state health insurance exchanges, and in most cases, the premiums under Obamacare have been decidedly higher, inspiring opponents to declare the legislation a patent failure. Yet this week, the state of New York came out and said that its exchanges would cut premiums by more than half, leading to proponents of health-care reform declaring the success of the program. Which side is right?

Measuring from different baselines
The problem that objective analysts face in assessing Obamacare is that everything depends on the baseline from which you start. Every state's insurance environment is different, and so in judging savings under Obamacare, you're inherently judging not only how well Obamacare does in establishing a health-insurance framework but also how well the pre-Obamacare framework did in providing low-cost care to those seeking coverage.

President Barack Obama delivers remarks on the Affordable Care Act's Medical Loss Ratio Refunds. Source: White House.

For instance, one key variable that is much different from state to state is the quality of insurance coverage offered under pre-Obamacare plans. In states that allowed insurance companies to craft lower-priced coverage by trimming benefits and imposing restrictions on coverage, premium increases under Obamacare tend to be higher, because Obamacare requires more comprehensive coverage that should lead to a decrease in out-of-pocket costs. Indeed, major insurance carriers UnitedHealth Group (NYSE: UNH  ) , Aetna (NYSE: AET  ) , and Cigna (NYSE: CI  ) are probably choosing not to participate in some states' health-insurance exchanges precisely because the required changes in benefits will fundamentally change the health-insurance landscapes in those states. That makes their profit prospects less certain and their shareholders more nervous about the impact the legislation will have on their bottom lines.

By contrast, in states that already required some of the same things that Obamacare does, Obamacare exchanges are more likely to produce premium savings, but they're also unlikely to have as much savings on out-of-pocket costs because pre-Obamacare insurance offerings already provided favorable benefits. They're also less likely to lead insurance companies to change their minds about offering coverage, because the nature of that coverage isn't all that different under Obamacare.

Another important aspect of pre-Obamacare insurance is the extent to which individuals actually obtained insurance under pre-existing frameworks. In New York, for instance, individual-coverage insurance has traditionally been extremely expensive, providing a huge incentive for healthier individuals to take the risk of going without insurance rather than paying high premiums. The result was essentially a high-risk pool of insurance policyholders who had no alternative. Insurance always works better when there are more people to share the risk, and the individual mandate under Obamacare will have a more positive impact on premiums in states where individual participation in pre-Obamacare insurance options was low.

Finally, no analysis of Obamacare health-insurance premium costs is complete without understanding the impact of federal subsidies on cost. With hefty redistributive impacts between high-income individuals paying full cost while middle- and lower-income households get varying amounts of subsidies, relying on averages can hide the differences that families in different financial situations will pay.

Don't believe the headlines
Whenever you see a claim that a state's premiums will go up or down under Obamacare, your first reaction should be to look beyond the headlines to see the assumptions that the claim is making. Without considering both total cost and insurance quality, you're likely to draw false conclusions from shallow analysis of Obamacare's impacts.

The other place where people are still very confused about Obamacare is in figuring out how it will affect your personal costs and your investment portfolio. On that score, we can help, as The Motley Fool's special report "Everything You Need to Know About Obamacare" takes a 360-degree look at how the law may impact your taxes, health insurance, and investments. Click here to grab your free copy today.


Read/Post Comments (23) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 20, 2013, at 9:53 AM, JackTroy wrote:

    Obamacare's State Rate Changes Are Misleading....because Obama is Misleading.

  • Report this Comment On July 20, 2013, at 9:58 AM, PCSTOCKie wrote:

    Seems like all Obamacare articles with even the slightest negative slant do not last long on Yahoo. Just wondering how long this one will stay alive

  • Report this Comment On July 20, 2013, at 10:07 AM, slanciano wrote:

    Ever wonder what's really in store for you involving Obozocare ?

    Bring up this Youtube portal page and type in the following search criteria:

    Know the TRUTH about the Government Health Care Bill

    Click search - then click on one video icons on the left margin

    This is video reading of the law word for word.No propaganda just the facts.

    This ends today's lesson #1.

    After viewing then you have to ask yourself .... when has government involvement ever resulted in improving efficiency of delivering a service that has resulted in cost savings ? The answer should be self evident. But in the words of Nancy Pelosi... "lets pass the bill so we can read what's in it". So bring up YouTube and listen to the verbatim reading of the ACA so you can appreciate just how convoluted it is. End result thousand upon thousands pages of regulations that have no end in sight. Thought the tax code was complicated ? Think again. End of lesson #2 for today.

  • Report this Comment On July 20, 2013, at 10:20 AM, GuitarJim wrote:

    "because Obamacare requires more comprehensive coverage that should lead to a decrease in out-of-pocket costs."

    Really? Raising rates by an average of $150 per month (for a healthy young person) will decrease out-of-pocket costs? I've got news for you. None of those healthy young people who will be paying this increase are currently paying anywhere near $150 per month in out-of-pocket costs. In fact, most of them will go for years without seeing a doctor for anything.

    And don't quote me average monthly health care cost figures from the insurance industry. Those figures include the chronically ill and people with devastating (and expensive) diseases, which dramatically skews the statistics.

    The truth is that Obamacare changes the rules of insurance underwriting. Instead of basing my premiums on my personal risk, it forces everyone to share a portion of the burden for everyone else just to ensure that even the highest risk people can get coverage. It turns the health care system into a government regulated social welfare program while pretending it's still a private industry. This is a prescription for failure. It will destroy the health insurance industry, decimate the health care industry, and drive millions of people into bankruptcy. It's the "nuclear option" for getting a single payer system.

  • Report this Comment On July 20, 2013, at 10:29 AM, doco177 wrote:

    1. Millions are losing the insurance Obama promised they could keep. Because ObamaCare forces employers to offer expensive Cadillac plans but also offers the option of paying a fine for not providing health insurance that can be cheaper than providing it, between seven and twenty million Americans are likely to lose their health insurance coverage according to the Congressional Budget Office. The original estimate was closer to four million.

    2. The cost of healthcare premiums is about to further skyrocket. Premium costs have already exploded, but that is a slow-motion explosion. In the near future, we could see costs double or worse. Naturally, these costs will hit an already burdened middle class hardest.

    3. Lost jobs. Lost jobs.

    The Federal Reserve's March beige book on economic activity noted that businesses "cited the unknown effects of the Affordable Care Act as reasons for planned layoffs and reluctance to hire more staff."

    Human resources consulting firm Adecco found that half of the small businesses it surveyed in January either plan to cut their workforce, not hire new workers, or shift to part-time or temporary help because of ObamaCare.

    4. Potential doctor shortages that will mean rationing: The healthcare industry is already a bureaucratic quagmire. ObamaCare is about to add steroids. As the profession becomes tyrannized by government, the talented people currently practicing medicine plan to get out sooner than expected. Who knows how many will choose not to get in. Doctor shortages are what lead to the nightmare known as rationed care.

    5. Somewhere around $800 billion in tax increases will hit America's middle class. This added burden will not only further oppress a middle class already reeling from a drop in wages over the last few years, but could damage the overall economy.

    6. Inflation, the cruelest tax on the poor. When businesses get socked with added costs brought about by higher taxes and burdensome government mandates, they pass those cost along to the consumer in the form of higher prices.

    7. Added bureaucracy. Even those Obama lapdogs over at the Washington Post's Wonk Blog are admitting that applying for health care is about to get more burdensome than the byzantine paperwork involved in buying a home.

    8. To cut costs or to avoid having to provide insurance, workers on the economic margins are already losing hours, which means a lower paycheck. There are a million sad stories in ObamaVille; here are just a few of them.

    9. ObamaCare is projected to add $6.2 TRILLION to a deficit the GAO has already declared "unsustainable." That's "trillion" with a "t".

    10. More taxes than currently estimated are likely to hit because of situations like this one.

    11.Muslims, Amish, Native Americans, Congress are exempt from mandate and penalties under Obamacare that the rest of us have to pay.

    The govt becoming more involved in health care is the reason the costs have increased. So Govt creates a crisis, then provides a solution that comes at the expense of liberty and freedom, costs trillions, and by most accounts won't solve the problem but in fact make it far worse.Corruption, incompetence, disregard of the Constitution, and lying are integral to the way that this country is being run.

    Three years ago, Obama, Democrats, and his media lied to us about cutting the cost of health care, being able to keep our insurance, and not taxing the middle class.

    Today, those lies and what ObamaCare is and will do to the working and middle class are the biggest untold story in America.

    Boycott and refuse Obamacare...If only a mere 20% of the over 300 million population of the USA boycott Obamacare the government would be overwhelmed to even think they could penalize or mandate every citizen that refused to participate in the most corrupt and unlawful ways which it was passed that circumvented the constitution of the United States.

  • Report this Comment On July 20, 2013, at 10:38 AM, jimatmad wrote:

    1. Obamacare is working.

    2. Motley doesn't like it.

    Got it.

  • Report this Comment On July 20, 2013, at 11:46 AM, ceh4702 wrote:

    Looking at the cost of insurance is just one issue. Obammacare is causing the poor to become poorer and even more unable to get insurance. What happens when your employer cuts your hours so the employer does not have to pay for insurance? Does the individual still have to buy insurance? What happens if people just send in their tax forms and write on them that they are taking the 5th just like the IRS? What happens if this causes a tax revolt? How much is all the enforcement going to cost the Government? What about couples that only have one wage earner and cant afford $500 to insure one person at age 55 up to retirement age? i.e. donut hole. Your articles need to look at the big picture. A lot of people have been layed off after the bank collapse caused by the real estate bubble and now they are over 50 and out of work. This stupid legislation is just punishing people.

  • Report this Comment On July 20, 2013, at 11:49 AM, ceh4702 wrote:

    No one is using obammacare yet. How do you know if it is working? Are you just trying to brainwash people?

  • Report this Comment On July 20, 2013, at 12:21 PM, KPPM wrote:

    I am amazed at the opposition to The Affordable Care Act-the only legislation to ever try and overhaul a broken system of healthcare delivery.

    The system before the AFC was great for those who had access to the remarkable health care resources of our nation, but for those who were underinsured or not insured it was a financial nightmare of rising costs for premiums (as much as 3-4 times the cost of inflation in some years) for cut back services.

    The argument against any further government involvement in health care was "you will be forced into HMOs, PPOs etc"

    yet in the last 50 years most of us have been forced into plans that tell us where to go to the hospital, which doctors and specialist we can see etc..by insurance companies!

    Every single time any President has tried to make healthcare more universal the money from those who like the status quo comes out to use every propaganda tactic possible to insure its defeat.

    Republican Richard Nixon wanted some form of Universal basic coverage-and it went nowhere.

    If this legislation does not work as intended-the Republican House must take much of the credit for its derailment...their number one mission since taking control of the House has been to put as many roadblocks in front of the implimentation as they could. The misinformation campaign has been bankrolled by big business and the Republicans are masters at it.

    They have stonewalled each part of the plan as effectively as they could, delaying, defunding and destroying its individual parts to attack the whole.

    Wonderful how our government can be at cross purposes and perhaps keep good things from trickling down to the people.

  • Report this Comment On July 20, 2013, at 12:39 PM, Stevegarry22 wrote:

    "Let's just get this signed into law, and then we'll read it" was, and is a prescription for disaster.

    The entire idea for odumbocare was for single payer government controlled health care. Another disaster, just ask Greece, France and Spain. Since odumbocare was signed into law my BC&BS premiums have doubled, my Co-Pays have gone from $500.00 per year for the family to $4000.00 per person per year. Health care is now UN-affordable for the middle class working people.

    Thanks left wing nut losers!

  • Report this Comment On July 20, 2013, at 2:19 PM, had0511 wrote:

    Here's the deal with ACA. It was a good idea that got hijacked by the insurance companies. Nothing comes out of Washington without somebody making money off it. That's why chief justice Roberts, Mr. corporate bought supreme court justice wrote an opinion that it was a tax. It is. On the people it was supposed to help. So if you are working poor in america and need health care, you get to essentially lose your EIC credit if you don't buy the garbage that has no access or you pay a penalty. It sucks but so does our government. Obama and the democratic party tried to save face and rammed this through. So now everybody will hate the government that's working poor. It sucks.

  • Report this Comment On July 20, 2013, at 2:21 PM, had0511 wrote:

    It was brilliant strategy by teabagger because now the working poor after they've figure out they got nailed by losing a fifth of their take home pay won't vote at all.

  • Report this Comment On July 20, 2013, at 2:47 PM, RHO1953 wrote:

    "Because of Obamacare mandates....." BINGO! MANDATES. He makes you buy coverage you might not even want. He makes you pay for something whether you like it or not. Just do as you are told, the Fuhrer knows what is best for you.

  • Report this Comment On July 20, 2013, at 3:11 PM, VRSEFgold wrote:

    Mr. Ovomit, The Lyin King! From Sept. 01, 2010 to Sept. 01, 2013, our Blue Cross Insurance Premium will have increased 286.5%, and we have not even had one doctor's visit charged to this insurance!

  • Report this Comment On July 20, 2013, at 3:17 PM, stever7golf wrote:

    Fool can't get away with repeating the Obama death panel trash. Having trouble with Obamacare being a success?

  • Report this Comment On July 20, 2013, at 3:19 PM, sofainggood wrote:

    People already say they know why ,, dont you ever read the paper

  • Report this Comment On July 20, 2013, at 3:21 PM, sofainggood wrote:

    Dont fear Obama is here ,, If you cant make a living in the US dont worry ,, Help is on iit's way with Obama care

  • Report this Comment On July 20, 2013, at 3:47 PM, yyim2 wrote:

    The health care industry is probably the only business around that makes their money by not providing services. Years ago, I worked for a company that provided health insurance from United Healthcare. I was going through a bad breakup and started seeing a psychologist and psychiatrist routinely. I did the right thing and followed my policy. I called United Healthcare and got approved for 7 visits for each plus approved for anti depressants. Well, months later I got a bill for thousands of dollars because United Healthcare claim they never approve any of it after all. They still got paid through my employer and myself because they took money out of my paycheck. It was impossible for me to get health insurance individually because it was too expensive. I was stuck buying crappy insurance from the worst in the business (UHC) unless I change my employers which was hard to do because it was a good job in my field. The current system is anti-free market. Had Obamacare been implemented at that time, I could of drop my employer's crappy health insurance, and bought a better policy through the exchange. A policy that was not with UHC. In other words, I could have said to UHC that you lied to me and will no longer get my money, I will take my business somewhere else.

  • Report this Comment On July 20, 2013, at 4:40 PM, soliberating wrote:

    It's funny how all these "pro life" Republicans are against providing healthcare for Americans.

  • Report this Comment On July 20, 2013, at 8:19 PM, trajan24 wrote:

    Staggeringly stupid article. INTELLIGENT analysis has shown increasing rates, millions LOSING current coverage, DOCTORS opting for cash only by the thousand, which leads to LONG bureaucratic waits at the few remaining Obamacare providers. Only an imbecile thinks a government service provider will be better than a motivated and dynamic private sector. This is stacking up to be an epic train wreck. Have fun paying those extra TAXES, libtrolls.

  • Report this Comment On July 20, 2013, at 8:53 PM, asICit wrote:

    I do believe I'm reading many objections and regrets here from a lot of young people, including many who were duped into supporting Obama in the 2012 election. You can't say you weren't warned in advance though. Can't find a job? Obamacare has a direct impact on the growth of small businesses that have 50 or more full-time employees. Had your full-time hours cut to part-time recently? You can probably thank Obamacare and the Democrats for that too as employers replace full-time with part-time employees to get under the 50 full-time employee threshold!

  • Report this Comment On July 21, 2013, at 1:30 PM, RFTECH3000 wrote:

    if obamacare fails then it wont be because of the GOP but simply because its legislation that was rushed through the legislative process without many lawmakers even having time to read, much less understand the bill !

    Nancy Pelosis famous comment that "we have tom pass the bill so you know whats in it " should tell the tale !

    A lot of people and groups fell in the trap of believing democrats and their promises yet as most of the warnings that were voiced by critics and subsequently dismissed by the democrats come to pass those groups are slowly waking up to the reality , the latest example are the Unions who were heavy backers of the ACA !

    Reality is that employers in order to reduce their costs cut workers hours and discontinue their company health plans rather paying the employee more $ and let them fend for themselves in the exchanges !

    Nobody denies that the system we had before the ACA needed improvement to cover the poor and people who were not able to gain coverage because of their health or age but this could have been accomplished by other means !

    The big winners of the ACA are NOT the consumers but in the end the big insurance companies and employers who now can dump their employer health plans and become more lean !

    The delay of the employer mandate is just a desperate attempt of democrats to limit the fallout of the ACA until after the 2014 elections however it is not working, even IF the employer mandate would be completely scrapped now it is unlikely that most employers will stop implementing their measures and go back to the way it was !

  • Report this Comment On July 21, 2013, at 1:36 PM, RFTECH3000 wrote:

    What is not mentioned here is that the quality of insurance coverage offered in the exchanges will be worse than what you get outside of the exchanges , this because insurance companies like Aetna or UHC who have a large network of providers wont participate in the exchanges in many states !

    Therefore many people who get coverage through the exchanges will find themselves having to drive quite a bit in order to get to a doctor or pharmacy that is in network for their "fly by night " insurance carrier they got simply because their network is not as big as the network of Aetna and UHC !

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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