SACRAMENTO (CBS/AP) — Californians who buy individual health plans will see their premiums increase an average of 14 percent next year under the Affordable Care Act, but payments will largely depend on income, age and where they live, according to a new report released Thursday by California’s health care exchange.
The report commissioned by Covered California found the increase is largely due to an influx of people who previously could not afford health insurance or were denied coverage because of pre-existing conditions.
While premiums will go up, exchange director Peter Lee said the small group of people will get better health plans that won’t bankrupt them if they become ill.
About 2 million Californians purchase individual plans, which represents a small portion of the state’s 38 million people. Those people lack employer health coverage and tend to earn too much to qualify for public health programs.
They can include independent contractors, self-employed individuals such as attorneys or florists, and small business owners.
“What we have as of Jan. 1, 2014, is real insurance that can provide the protection for the first time that all Californians that buy coverage through the individual market will know they will never go bankrupt,” Lee said in a conference call with reporters. “That’s a game changer.”
Lee said one of the exchange’s challenges will be to communicate changes coming under the federal health care overhaul. Even though premiums may go up, Californians will receive more benefits to offset the costs, such as guaranteed coverage, limits on out-of-pocket expenses, and comprehensive medical coverage to protect them when they need it.
The report estimates that rates in California would rise 9 percent in 2014 without federal changes. California, which is ahead of most states in planning an insurance exchange, is expected to be a trendsetter on rates.
The study by the Milliman consulting firm did not look at the impact of federal health care overhaul on costs for most adults who receive coverage through their employer. Instead, it analyzed how the federal law would impact individual premium rates next year.
Covered California is hoping the study will guide health insurers in pricing their plans as the companies submit bids to sell on the state’s insurance marketplace. The exchange, as it’s called, launches Oct. 1.
The report estimated that extending coverage to the uninsured will result in a 26.5 percent average increase for individual plan premiums. However, the report said much of that increase will be offset by other factors, such as special payments to insurers to attract an outsize share of the sick, and the price-cutting effect of competition and more effective contracting.
Premium prices will vary greatly depending on an individual’s age, income and where they live. For example, a person earning less than $28,725, or 250 percent of federal poverty level, will see rates drop an average of 85 percent because they will be eligible for larger tax credits.
A person earning between $28,725 and $45,960, or between 250 percent and 400 percent of federal poverty level, will pay an average of 45 percent less due to partial subsidies.
Individuals making more than $45,960 would likely see an average premium increase of 30 percent because they won’t receive any subsidies.
Larry Levitt, a private health insurance expert with the nonprofit Kaiser Family Foundation, which analyzes health policy issues, said the projections illustrate flaws in the current individual insurance market system. He said rates are misleadingly low because people who are sick or have pre-existing conditions are excluded from medical underwriting.
“You may be paying a low premium because you’re healthy but there’s no guarantee that if you get sick, that that premium is going to stay low,” Levitt said. “By fixing the market, people are getting more security and stability in their coverage over time.”
Patrick Johnston, president of the California Association of Health Plans, said insurers are supporting the implementation of health changes, but the report underscores a concern about cost increases.
“All these expansions add to the already increasing cost of care — costs that have outpaced inflation as obesity, chronic conditions and many other factors have driven up medical expenditures,” Johnston said in a statement.
The study also showed that younger adults will experience higher rate increases while older adults could see decreases. Exchange officials said increases could be offset by federal subsidies because younger people tend to earn less and people under 30 can select a catastrophic plan for less money.
Adults under 26 can also remain covered under their parent’s health plans, which was one of the provisions that has already gone into effect.
(Copyright 2013 by CBS San Francisco. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)