“Ratchet Effect” Causing Major Cost Increases for Obamacare Enrollees: NCPA
January 27, 2016
Dallas, TX (1/27/2016) – Obamacare enrollees were already warned to prepare for double-digit rate hikes. Now, the structure of Obamacare’s tax credits is ratcheting up the out-of-pocket costs of premiums – especially for the lowest earning enrollees, according to a new report by National Center for Policy Analysis Senior Fellow John R. Graham.
“This ‘ratchet effect’ on the out-of-pocket cost of premiums is greatest for the lowest earning enrollees, only slightly above the federal poverty level,” says Graham. “Some of them will see hikes of 50 percent or more.”
What’s behind this ratchet effect? Obamacare’s tax credits are determined by an enrollee’s income and the second-least expensive Silver plan in the locating region. This introduces harmful leverage into most enrollees’ renewal, which can increase the net premium by a significantly higher percentage than the increase in gross premiums.
Could it be avoided? If every single enrollee who chose the second-lowest cost Silver plan in 2015 took the time to shop around and found the second-lowest cost Silver plan - which is usually different – the average gross premium hike would be 7.5%. This is an unlikely, best-case scenario, given enrollee’ behavior renewing from 2014 to 2015, says Graham.
"Numerous reports of double-digit rate hikes in Obamacare's health insurance exchanges understate the increases most consumers are facing. The gross premium for the average Silver plan increased 10 percent. However, the subscriber earning 150 percent of the Federal Poverty Level has seen a 28 percent increase in net premium,” says Graham. “This is because of the perverse way tax credits are allocated to insurers in the exchanges. This ratchet effect explains why subscribers are more outraged by premium hikes than Obamacare's advocates appreciate."