It's been a bit of a rough start for the Affordable Care Act, which you likely know better by now as Obamacare, but the reason for the rough start is for different reasons than you probably would have expected.
Obamacare gaffes take center stage
If you recall, at this time last year a majority of health exchanges were mired in a sea of technical glitches. Perhaps none was more profiled than the federally run health exchange, Healthcare.gov, which took more than two months to get working well enough to reliably take in enrollment applications from the 34 states it covered last year. This year those technical fears have been largely unfounded.
Instead, Obamacare has been dealing with foot in mouth disease, not to be confused with the viral infection known as hand, foot, and mouth disease. Within the past few days we've learned that the Department of Health and Human Services had incorrectly been reporting the number of actual enrollees in Obamacare. While optimists had been singing the praises of the reduced number of uninsured and touting the fact that enrollment figures had surpassed the Congressional Budget Office's Sept. 2013 forecast of 7 million enrollees, it turns out that 380,000 dental plans had been incorrectly accounted for in the HHS figures. In actuality, Obamacare only has 6.7 million paying customers as of mid-October, which is shy of the CBO's estimate.
Combine this incredible gaffe with the recent disparaging commentary from Jonathan Gruber, one of the primary architects of the Affordable Care Act, and you have a storm of negative PR that could, in theory, hurt public sentiment toward the law even further to the point that it dissuades some of the remaining insured and currently insured from signing up or renewing their policy.
What matters most to the consumer
Beyond these clear PR miscues, however, we have a consumer base that is very eager for a good deal in 2015. A Radius Global Market Research study conducted recently showed that while 80% of households were happy with their health plan in 2014, two-thirds of all enrollees planned to shop around for a better value in 2015.
A closer inspection of premium prices across the U.S. also gives consumers all the more reason to shop around. According to the premium price moves (the lowest-priced silver plan by county) released a day prior to open enrollment beginning by The New York Times for federally run states, some states such as Montana, Maine, and New Hampshire were projected to see sizable premium price declines. Other states like Alaska could see premium prices shoot higher by 28%! These pricing disparities across states can be enormous.
Furthermore, plans that were the least-expensive last year may have seen their prices change dramatically this year due to a number of reasons. For example, new entrants like Centene (NYSE:CNC) and Molina Healthcare (NYSE:MOH) dipped their toes into the individual insurance market last year for the first time and were sort of flying blind when it came to premium pricing. While some of their plans are falling, big swings in either direction could be possible. Additionally, a 25% increase in the number of insurers operating across state and federal exchanges could impact prices as well.
Long story short, Americans are looking for a good deal this year, and insurers are certainly hoping you find it.
The health plan on your insurers' wish list
Overall, Obamacare offers consumers four different tiers of plans that they can choose from: platinum, gold, silver and bronze.
As we've discussed previously, platinum plans run the most in upfront premium costs, but they have the lowest out-of-pocket expenses for the consumer at just 10% of total expenses. Essentially they're an ideal plan for someone who has a chronic condition that'll have them visiting their doctor often.
On the other side of the equation are bronze plans which have the cheapest monthly premium costs, but also require the consumer to pay 40% of all expenses (up to the annual deductible) out of their own pocket. Silver plans, which require insurers to cover 70% of all medical expenses and consumers the remaining 30%, were by far the most popular plan in 2014 accounting for around 60% of all plans sold. Bronze plans came up a distant second at roughly 20% of all sold plans.
On the surface it might seem like platinum plans are the source of insurers' greatest profits since it means consumers have to pay more money toward the upfront premium. However, the health plan your insurer really hopes you buy this enrollment period is a bronze plan.
It might seem counterintuitive to assume that your insurer is hoping you'll choose a cheaper plan, but it also means that consumers are initially responsible for more money out of their own pocket. With the understanding that consumers could be on the line for somewhere around $6,000 (or perhaps even more) in annual out-of-pocket expenses for medical care, it makes them more choosey about when they decide to go to the doctor. This reduces unnecessary trips to the doctor and effectively boosts insurers' margins.
Two important takeaways
Understanding which plan your insurer would prefer you buy leads to two important takeaways.
First, it means insurers that have traditionally focused on lower-income individuals should be big beneficiaries this enrollment season considering that consumers are on the lookout for a good deal. The aforementioned Centene and Molina are two insurers whose businesses are geared toward lower-income individuals and which could be in line to benefit.
It also means consumers should shop around but not necessarily jump at the lowest price they see. Consumers need to take into consideration factors such as how often they plan to go to the doctor and what sort of out-of-pocket expenses they can actually afford. Also, not all plans within a tier are the same, with some offering additional benefits beyond just the minimum required by the ACA, so it pays for consumers to really do their research this year.