RUTHFULLY YOURS

http://www.wsj.com/articles/stephen-t-parente-a-lull-before-the-obamacare-rate-storm-1418685506?mod=hp_opinion

Premiums this year are a nice surprise. It’s 2017 when hikes will kick in—‘bronze’ family plans alone could rocket 45%.

Americans visiting Healthcare.gov to purchase 2015 health-insurance plans are finding a nice surprise: Average premiums for the cheap “bronze” plans have increased only by 3.4% and premiums for the middle-of-the-road “silver” plans are rising by 5.8%, according to the American Action Forum. Where are the double-digit premium increases that so many predicted? Check back around this time in 2016. That’s when you’ll see the real spikes.

The Affordable Care Act includes two temporary programs that make compliant health-care plans temporarily appear far cheaper than they are: Risk corridors and reinsurance. Both programs will expire on Jan. 1, 2017. By November 2016, consumers will know how that sunset will affect their plan’s premium.

Risk corridors and reinsurance are simple concepts: They subsidize insurance companies with taxpayer money. With the former, the taxpayer is covering the difference when patients spend more on health care than insurance companies predicted. With the latter, taxpayers are paying for the most expensive patients—those that make more than $45,000 in claims annually. In a telling move, the White House quietly expanded the risk-corridor program earlier this year, implying that health-insurance companies are losing billions of dollars on ACA plans.

This is why premiums on Healthcare.gov are cheaper than many predicted. The taxpayer’s generosity allows insurance companies to hide the true costs of the plans.

But this will likely end when both programs expire in two years. At the same time, the exemptions issued by the White House and the Department of Health and Human Services—including the exemptions that allowed millions of consumers to keep noncompliant plans that would have been canceled—will also expire on New Year’s Day, 2017.

ENLARGE

Associated Press

I recently released a study, co-written by Michael Ramlet, through the University of Minnesota’s Medical Industry Leadership Institute, estimating how premiums will react once this happens, using HHS enrollment data.

We estimate that premiums—especially for the cheapest plans—will increase at a much faster rate after 2016. Bronze plans could increase 45% for families, to about $13,000 from $9,000. Individuals could see a 96% spike, to nearly $4,000 from $2,000. Other plan types—silver, gold and platinum—will see smaller, but still substantial, increases. Premiums for cheaper plans will increase at a faster rate because their deductibles will likely decrease to meet ACA regulations starting in 2016.

After 2017, premiums will rise at the level they do now, a few percentage points every year. Yet our data still indicate that—for at least the next decade—premiums will increase faster than they did in the years before the Affordable Care Act’s implementation. Federal subsidies for ACA plans won’t be able to keep up.

This will leave consumers with a dearth of cheap health-care plans—and some difficult decisions. Right now, average premiums for bronze plans are roughly half as expensive as premiums for silver plans, the next tier up. But by 2017 the bronze premium could be about 25% cheaper for families and 30% cheaper for individuals.

Consumers will begin fleeing the individual health-insurance market in response to these rising costs. This will cause a 13% contraction in 2017 and a roughly 1% contraction about every year thereafter for the next decade, according to our estimates. The consumers who abandon the market will be acting rationally: They’ll migrate to cheaper options, even if that means abandoning health insurance altogether. To wit: Our study estimates that the number of uninsured will steadily grow from 2017 onward. The number of uninsured could reach 40 million within the next decade—about 10% higher than it is today.

How do you avert this trend? A partial solution would be to issue fresh exemptions for consumers who want or already have noncompliant health-care plans, which could ensure that the ACA is never fully implemented. This would also have to be matched by extensions of risk corridors and reinsurance. Yet such a move seems both politically and financially infeasible.

The new Congress in January has little incentive to save the Affordable Care Act from further embarrassments. Extending taxpayer subsidies to insurance companies would also create a political firestorm—and add untold billions of dollars to annual federal deficits. The White House could extend these programs unilaterally, but the next president could simply reverse such a decision.

This leaves the Affordable Care Act in a precarious position. It was sold on the promises of affordability and universal coverage, yet neither promise can be kept after 2017. America’s debate over health-care reform is only getting started.

Mr. Parente, a professor of health finance, is associate dean at the Carlson School of Management at the University of Minnesota.