I will admit: I've tried hard to stay out of the debate that has raged on for years around the Patient Protection and Affordable Care Act, commonly known as Obamacare. I am not an insurance actuary, nor a doctor; trying to understand all the different facets of the law can be a dizzying prospect.
One thing I am, however, is an American citizen who has to purchase individual health insurance to cover my family and myself. So I've been keeping a close eye on what will happen to individual insurance rates in Wisconsin -- my home state -- as the insurance exchange is set up within its borders.
It turns out, if what we're seeing out of states like California prove any trend, many Obamacare opponents have been wasting a lot of hot air on doomsday predictions of unaffordable premiums.
A surprise from out west
Back in 2009, the Congressional Budget Office predicted that a middle-of-the-road "silver" health insurance plan would cost about $5,200. A separate study by Miliman, an actuarial firm, backed up these findings. It said that a silver plan in California would run about $5,400 per year.
As it turns out, both were off... by a lot. Last week, Covered California, the state's mandated exchange for individual insurance plans, announced the rates that its participants were offering. The average cost of a silver plan in California is about $3,300 per month -- or roughly 40% less than what the professionals predicted.
It turns out that when given the chance to gain exposure to millions of younger uninsured people, insurance companies were more than willing to offer reasonable rates in order to gain market share. And since the exchanges are set up to compare apples-to-apples benefits, companies are highly incentivized to offer affordable policies.
Will it carry through?
Other Fools have already covered much about this topic. Keith Speights wondered aloud if the ultimate winners would be companies that chose to participate in the plan -- like WellPoint (NYSE:ANTM) and Health Net (UNKNOWN:HNT.DL) -- or those that opted not to.
Sean Williams, on the other hand, opined about how the lack of participation from Aetna, Cigna (NYSE:CI) and UnitedHealth (NYSE:UNH) revealed a possibly huge problem: The industry's biggest players didn't think competing for these plans was worth it. Sean points out -- but I don't think gives enough credence to -- the fact that these three companies are far, far more focused on group health plans than individual ones. Together, these three insurance giants accounted for only 7% of California's individual health policy market.
To get a better picture, it might be worthwhile to look at two other states that have come out with their exchanges and rates recently: Oregon and Washington state. A silver plan with Cover Oregon for a single, non-smoking 40-year-old living near Portland runs as low as $2,650. A similar plan in Washington will run as low as $3,200 per year.
In Oregon, Health Net is the only publicly traded company, of roughly 15, taking place in the exchange. In Washington, Molina was the only publicly traded of five taking part. So the same problem that Sean noted with California still exists: the lack of a Big Three insurance player.
Nationwide, when it comes to individual insurance, WellPoint has the highest market share, at 14%. UnitedHealth is actually second, with 12%, and Kaiser -- which is participating in the markets of all three western states -- comes in third, with a 10% share.
As it stands, two of the three largest individual players are involved. UnitedHealth is the only one sitting on the sidelines for now. Interestingly, it was UnitedHealth that came out in 2012 saying that it would preserve many parts of Obamacare regardless of whether it passed the Supreme Court.
Where does that leave us?
Because Aetna and Cigna were completely insignificant in the three states that have released rates, it's hard to draw any hard and fast conclusions. For now, it's certainly a win for west coasters who won't have to shell out nearly as much as others had anticipated. Whether that turns out to be the long-term case remains to be seen.