Obamacare Premiums Are About to Soar. How’d We Get Here?

Dan Gorenstein: Millions of Americans who buy their own health insurance are about to be hit with some sticker shock. 

Federal subsidies are expected to shrink next year for health plans sold on the  Affordable Care Act exchanges.

Many people are likely to be priced out. 

And with fewer customers, health insurers are raising prices and some may eventually abandon markets altogether. 

More than a decade after the launch of Obamacare, we’re still a long way from thriving markets where consumers can shop for affordable coverage.

Today, why it’s still so hard to buy health insurance in America, and where we might go from here.

From the studio at the Leonard Davis Institute at the University of Pennsylvania, I’m Dan Gorenstein. This is Tradeoffs.

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DG: Maybe this is a little bit personal, but what’s in your cart?

Jon Kolstad:  Funny enough, it’s a little different than usual. Usually I got things like groceries and whatever my kids need for school, but, a buddy of mine just had a baby actually, and so I have some baby books in my cart. 

DG: That’s Jon Kolstad. I called him a few weeks ago to talk about his research on Obamacare. 

Jon’s a health economist at the University of California, Berkeley. He spends a lot of time thinking about the insurance marketplaces created by the Affordable Care Act. 

To help me understand why they are headed for trouble, Jon thought it would be good to talk about a market that, he says, usually works pretty well.

JK: I think Amazon’s a great example of a marketplace. 

JK:  It’s simple, right? I know everything is there. I know what I’m getting. So I have confidence in the marketplace to be, you know what we might, as economists, call robust. Really, it’s just, I have the products that I need. And I also can be confident in the price there.

DG: Okay. And what books did you get John?

JK: I got “Jamberry,” which is a absolute favorite of my children who are now much older than the new arrival. “Goodnight Moon” and “Pat the Bunny.”

DG: Okay. Right. I know Goodnight Moon. I don’t know “Pat the Bunny,” or maybe I know “Jamberry.” It sounds familiar.

JK:  ”Jamberry” was a classic, which I can probably still, whether for joy or trauma, repeat most of it from memory.

DG:  So wait. So “Jamberry,” do you, do you remember how it starts?

JK: Well actually I can remember it and it’s, one berry, two berry, pick me a blueberry.

DG: I do remember this book. (laughs)

DG: Ok. So, Amazon is a well-functioning market because there are sellers competing for business on price and innovation. And buyers know they can confidently turn to the market to shop for what they want. 

But Jon, why does Amazon work so well? 

JK: Essentially, the idea is, you really need two sides of the market.  I mean, really, we think of a market as bringing together buyers and sellers.

DG: And, right there, when we talk about the Obamacare marketplaces, this is one of the big problems.

In this country, more than 150 million people with health insurance get it at work, as a benefit from their employer. They don’t shop around for it.

Obamacare markets are much smaller. About 24 million people bought insurance in the ACA markets this year. And that was a record. 

There simply aren’t as many buyers, and therefore sellers just aren’t as interested in chasing their business.

JK:   Yeah, I mean, these markets were always intended to be bigger, right? The idea was that they would be a robust place that even employers might want to use as their source of insurance.

But there’s an important reason why insurance is fundamentally different, and it’s been hard to get these markets to that scale. If you sell books, you know, who buys that book doesn’t affect the cost of producing that book. But here, you know, if you sell insurance that sick people really like, sick people are much more expensive to insure. And so ultimately you lose money on those customers.

And so you have a situation in which insurers would really prefer healthy customers. But those healthy customers don’t always wanna buy insurance because they know they’re healthy. And so you have what we economists call adverse selection.

Really to make one of these markets work, you need at least a good mix of healthy and sick customers in the market together to get the products everyone wants at the prices everyone wants for them. 

DG: Certainly more complicated than buying “Jamberry.”

Jon, the people who created the ACA marketplaces, they intended to build something that would work a lot like Amazon, yeah? Even though they knew selling and buying health insurance had all these challenges making sure that there was a mix of healthy and sick consumers.

How did they think they could pull that off? 

JK:  You kind of have some big, big tools that you can use. One is getting people into the marketplace, right? And originally that was the individual mandate. And secondly, subsidies.

DG: Right, to guarantee customers, the ACA mandated that most people had to have insurance. There was even a penalty if you didn’t. And the law also offered to pick up part of the tab for people with lower incomes, those are the subsidies we’re talking about

JK: Yeah. And the other side is creating the right incentives for insurers to offer products not just to try to attract the healthiest enrollees.

The idea being essentially, you can’t make too much money if you get really healthy enrollees and if you get, enrollees with certain types of conditions, we’re gonna give you an extra subsidy because we know they’re more expensive.  Right? The latter being risk adjustment, the former being risk corridors. 

DG: Ok, Jon, I know ‘risk adjustment’ and ‘risk corridors’ slide right off your tongue, but let’s slow down for a second. 

The gist is these two policies act as a check and balance on insurers who may end up with too many healthy people or too many sick people, so insurers, regardless of their mix of consumers, have a level playing field.  

So that was the design. I believe this is what’s called managed competition. Yeah? A little regulation. Some market forces.

 JK: Yeah. To be clear, these kinds of managed competition marketplaces do function in other countries with real, you know, private insurance offered in a marketplace. So it’s not that this is just just a pipe dream overall, right? For example, the Netherlands, Switzerland, these are used.

DG: Let me ask you this, Jon. In the U.S., the ACA marketplaces have been open for business now for more than a decade.

The goal, right, was to create something that looks a lot more like Amazon.

Why has the U.S. struggled to create a thriving insurance market when countries like the Netherlands and Switzerland have pulled it off?

JK: There are probably a number of factors, but I think one of the big ones is the political climate around the ACA kind of since inception.   

And so that created this sort of interesting and challenging situation where for example, a Republican is much less likely to sign up for insurance in an ACA exchange, but only if they’re healthy, right? So if they were sick, in fact, we saw exactly the same rate of enrollment as Democrats.

And so, you know, the situation in which basically political ideology, raised the prices.

DG: One policy has done more than any other others to draw consumers into the markets: subsidies. 

Research in the last decade has shown how well subsidies have succeeded. 

A new paper found that extra subsidies since 2021 are responsible for nearly 20% of all the growth in all insurance coverage under the ACA.

As we’ve discussed, Jon, those larger subsidies disappear in a few months and insurers are asking for big premium increases next year. 

What’s going to happen next, Jon? I mean, this is like, cue the scary music time?

 JK: So it’s gonna be interesting to see. I think a couple of things will be important to follow. 

You know, you have a lot of people who’ve been able to get a checkup, who have a doctor who say, oh, when I went I didn’t have to go to the emergency room and then navigate all these bills. I do kind of wonder whether there’s sort of this learning about the product that’s gonna be really important for people in terms of staying in.

 JK:  But, yeah, I think you’ll see disenrollment, you’ll see premium increases and that will lead to the all but those that have really, really high subsidies exiting the marketplace, so they’ll shrink.

DG:  Open enrollment starts Nov. 1.

That’s when consumers can compare prices and options for next year. 

We know premiums are also rising sharply, for anyone — with or without subsidies, with coverage from a job — because of higher health care costs. 

So proponents for allowing these enhanced subsidies to sunset say that they were always intended as temporary. People knew that. And low-income consumers will continue to get substantial subsidies. 

If the goal is to create a busy marketplace, like the one you found on Amazon for Jamberry. What do you see as the way forward, Jon?

 JK: I would put subsidies back in place. Not because we think we’re gonna be subsidizing everyone, but because we want a broader pool of folks there. Where the lowest income population goes to confidently get the insurance they need, and the innovative new startup that’s recruiting people out of big tech companies is able to say, I can offer you, from day one, a good benefit that you want because I use the exchange, I think a world in which all of them are shopping in the same place, right, that looks like Amazon, it’s not that far away. It requires serious effort.

DG:   Jon Kolstad, thank you so much for taking the time to talk to us on trade offs.

JK: Of course. Glad to be here. Thanks for having me. Dan.

JK: Mountains and fountains rain down on me. Buried in berries. What a jam jamboree! 

DG: When we come back, we talk with one 56-year-old shopper in the Obamacare markets about the decision she’s facing if subsidies shrink next year. 

BREAK

DG: Welcome back. We are talking about what could be some rough years ahead for the Obamacare health insurance markets. 

Many people are expected to drop their coverage in 2026, as federal subsidies get smaller. For shoppers who stay, premiums will shoot up.  

To understand why some consumers may bolt and go without insurance, I talked to Nance Schick, a small business owner in Virginia. 

Nance Schick: I’m the founder of Third Ear Conflict Resolution, which is a New York employment law and mediation firm.

DG: Nance is proud of her career, of how far she’s come. 

She and her sisters were the first generation in her family to graduate college, something their hard-working single mother had insisted on. 

NS: My mom raised us on about $70 a week. It was rough, but one thing she instilled in us was that you’re gonna go to college because you’re going to have opportunities. I’m aware that being a woman at the age that I am in, in the United States had a huge impact on my opportunities. Opportunities that my mom didn’t have. My grandma didn’t have. Right. So I, I value all of this. It’s also why I want to contribute to opportunities for other people. It’s why I do the work that I do.

DG: Nance sees her role as a mediator as creating opportunity, by helping people in tense moments, people in conflict, find a way forward without burning bridges.

NS: Like I’ll give you the perfect example is I have a client who calls me pretty regularly now. She’ll go, I have this employee that did this thing and you know me, I’m livid right now, and I want to scream at her, but I know that’s not the most valuable thing.

DG: These are the moments that remind Nance why she loves the work she does.

NS: She really cares about her employees. She’s got a business now and it’s doing pretty well, and she loves giving other people opportunities. And so when she can stop and think that through and create a a different work environment, she gets to grow.

DG:  As an entrepreneur, Nance spent years without health insurance. She exercised, watched what she ate. Then in 2014, she was mugged.  

NS:  I had some pretty severe injuries … and had a head injury, back injury, hip injury. When the police came, right. And it was a little chaotic, but I do remember them asking me if I wanted to go to the hospital. And I was adamant that I didn’t wanna go because I didn’t have insurance.  I know what those bills can cost.

So,  I think that was one of the big turning points for me is that, and probably my partner at that point, he was on my case a little bit about like, “Hey, something like that could happen again. Or what if you get sick?” So I said, all right, Affordable Care Act, let’s give this a whirl. 

DG:  And so when you got. The insurance. When you bought your first Obamacare plan, how was it, was it one of those situations where you felt like, okay,  I’m taking care of myself and it’s valuable. Or was it one of those moments where you go, I’ve got health insurance in sort of name only, but not in reality.

When I first got it, I was excited to have it. It made me feel a little bit more confident. 

NS:  I said, oh, if something does come up I’m taking care of. It seemed like a fair premium. And then I was riding my bike,  hit my head, fortunately, had my helmet on, right. Hit the pavement, hit it pretty hard. 

DG: This time, because she had coverage, Nance decided to go to the hospital.

And so I was glad I had the insurance, until I got the bill. 

DG: She ended up on a payment plan for 18 months.

And I thought, why do I have insurance? 

I said, how about I self pay, and so I basically self-funded my care for years, but that also meant I went without preventative care for many years. 

DG: And Nance, what’s that like to be uninsured? 

NS:  My mom had cancer three times. If my mom had not had a health insurance, I would’ve lost her in my twenties. You know, I see what happened to my cousins. Two of them had breast cancer simultaneously. One was insured and one wasn’t. One is with us and one is not. 

And the frightening thing about that, as I age, I know that that’s a bigger risk every year. 

DG: At the urging of her partner, who she now owned a house with, Nance returned to the Obamacare markets in 2024. 

Nance, when you got there, what did you find? 

NS:  I was convinced that I was gonna go on and probably go to him and go, see, I can’t afford it. And I was really surprised that I could.

DG: Nance got a deal she couldn’t pass up: The government could pick up her entire premium.

NS: I understand that that’s not really where we want people to be. And I’m willing to pay something reasonable, but I cannot pay a thousand dollars a month.

DG: Nance, you expect next year you will have to pay premiums. And you’re saying you’re willing, but ultimately there is a limit. If it gets too expensive, you’re going to just drop the coverage. Millions of others, as price-sensitive as you are, are expected to do the same.

NS: So yeah,  I’m scared, I’m angry, I’m frustrated. I’m overwhelmed with trying to make sense of things, trying to run the numbers so that I know I’m making an educated decision when I have to make that decision.

DG:  I could imagine somebody hearing this, who thinks that these enhanced subsidy should go away, that they were designed to go away, and that if having health insurance is such a priority, you need to make changes. You need to sacrifice something else. 

NS: What am I going to sacrifice? Tell me what it is. I don’t own a car. I have a small home, right, that I share with my partner.  I don’t go on fancy trips. I’m not saying, oh, don’t take my third home, right? I’m saying, please don’t take the home that I have left. I’m saying, don’t take the business that I’ve been working for 22 years and that I’m just starting to get in a different direction.

DG: Nance, the Trump administration last week made it easier for more people to buy catastrophic health plans in ACA markets. 

Catastrophic plans cover some of what other ACA plans cover, but the deductible next year is $10,600 and applies to everything except preventive care and three primary care visits. 

Is something like that an option for you? 

NS:  Possibly. It doesn’t sound that different from what I have.

A lot of it comes down to what are the monthly premiums, because my annual deductible is so high already. If I could get a catastrophic policy for a few hundred dollars a month, that might be attractive to me. 

DG:  Why would it be worth it for you to have catastrophic insurance for a couple hundred bucks? What’s valuable about that for you? 

NS: Because I’m healthy and that’s really why I carry health insurance in the first place, is for those catastrophic events because we don’t know what could happen. 

And it seems like a prudent thing to do to have some sort of safety net, and I’m willing to pay something for that, but I’m also not willing to put so much in and get so little back out that I’m putting myself in financial danger.

DG: Nance, thanks for taking the time to talk to us on Tradeoffs.

NG:  Thank you. 

DG: Those catastrophic plans may attract some shoppers like Nance. 

And researchers at Georgetown University say these plans could further shrink markets and push up prices for the rest of the ACA plans, by siphoning healthy consumers into catastrophic coverage. 

I’m Dan Gorenstein. This is Tradeoffs.