Administration should fully disclose risks to enrollees in Obamacare exchanges

More and more businesses are figuring out that continuing to offer health benefits puts them at a competitive disadvantage vis-à-vis firms who socialize the cost of health care by shifting their employees onto Obamacare exchanges. These crafty firms, however, probably don’t realize they are putting their employees at enormous risk. If they are operating in one of 36 states where Obamacare might come to a screeching halt in the second half of 2015, their workers could lose their subsidized Obamacare plans as early as July.

This is what will happen if the Supreme Court decides in favor of the petitioner in the Obamacare case of King v. Burwell. This case addresses the question of whether or not the federal government can pay subsidies to insurers in states that did not establish their own health-insurance exchanges.

{mosads}The Court will hear oral arguments on March 4, and is expected to announce its decision in June or July. If it finds in favor of King, tax credits to health insurers via the federally operated exchanges in 36 states will likely stop within a few weeks. Enrollees would then face the true premiums of their policies for the first time. Many would not be able to afford them.

Enrollees are likely unaware of this possibility, because the exchanges were designed to camouflage the subsidies. The Obama administration likes to pretend that it has actually lowered the cost of health insurance in the individual market. Thus, the exchanges are designed show applicants only the premiums net of subsidies.

According to a recent report from the Department of Health and Human Services, the agency headed by the very same Sylvia Burwell named in the lawsuit, the average Bronze plan for a single person in 2015 is $265 per month. Silver, the most popular plan, has an average premium of $336 per month. Platinum, the most expensive, costs $439. However, the agency also notes that 8 of 10 returning enrollees will be able to get a plan for less than $100, regardless of the metal level they selected in 2014.

A 27-year old single woman earning a little over $25,000, for example, would pay a maximum of $148 for the second-lowest-cost Silver plan. However, the actual premium of that plan is $222. So, if the Supreme Court knocks out the subsidy, her premium will jump by $74, an increase of 50 percent!

Because the subsidy is the same for less expensive plans, the people who were the best shoppers will suffer the worst price shock. Suppose, for example, the woman had bought the least-expensive Silver plan for a premium of $99 net of subsidy. In that case her premium would jump by three-quarters, to $173. If she had bought a Bronze plan for $74 net of subsidy, her premium would double to $148.

According to the RAND Corporation, more than 9.6 million low- and moderate-income people would lose coverage. Even if the woman in our example accepts the premium hike, she is unlikely to be happy with the employer who told her months earlier that she would save money by enrolling in Obamacare instead of the company’s now-cancelled health plan.

Further, even if she could find the extra $74, she will be dealing with a very frustrated health plan. The insurers know that, after such a sticker shock, healthy patients will stop paying premiums, and the sickest will stay with the plan. The plans will rush for the exits as quickly as they can.

The Obama administration is neglecting to inform people of this risk. A privately owned corporation is obliged to disclose the risks of pending litigation to interested parties, but this constraint does not apply to the federal government. Indeed, despite these risks, Team Obama is cheering the fact that millions of people are bailing into the Obamacare exchanges and pretending that everything is going swimmingly.

This deceptive nonchalance needs to change. The administration needs to disclose fairly and fully, on the Healthcare.gov and elsewhere, the exact nature of the legal risk that people are taking when they apply for Obamacare coverage in one of the 36 states without their own health-insurance exchange. And it needs to insure that “navigators” and others who are signing people up do so only after ensuring that applicants have given their informed consent to this risk.

Graham is senior fellow at The Independent Institute (www.independent.org), Oakland, CA and senior fellow at National Center for Policy Analysis.