Most individuals will pay less, not more, in Obamacare exchanges

Note: This post has been changed to correct errors that stemmed from a misinterpretation of data provided by the Indiana Department of Insurance.

The Indiana Department of Insurance last week announced that premiums for individual health insurance will be 124 percent higher next year, on average, than they were in 2012.

And the insurance department attributed 72 percent of that increase solely to the Jan. 1 implementation of Obamacare.

Ouch, right?

Well, not so fast.

At least for the average consumer buying in the Obamacare exchanges next year, these rate hikes will be more than offset by the subsidies that Obamacare will also make available to individual health insurance consumers.

Obamacare, aka the 2010 Patient Protection & Affordable Care Act, will create a new marketplace for Hoosiers buying health insurance on their own, called an exchange. The exchange will be a web site where consumers can compare plans from various health insurers.

In Indiana, only four health insurers will offer health plans on the exchange. Anthem Blue Cross and Blue Shield will offer a plan statewide. Also, MDWise Inc. will offer a plan in 16 of 17 regions around the state.

Fort Wayne-based Physicians Health Plan will offer a plan in roughly half the state. And Coordinated Care-Celtic will offer a health plan in just three out of 17 regions of the state.

Hoosiers that buy coverage via the exchange will be eligible for federal subsidies, if their household incomes fall between 100 percent and 400 percent of the federal poverty limit.

For a single adult, that means between $11,490 and $45,960. For a family of four, that means between $23,500 and $94,200.

The Indiana insurance department said the average plan offered in the exchange will cost $570 per member per month. Now as Sarah Kliff of the Washington Post noted, the actual rates for some of the cheaper plans offered in the exchanges will be much lower than this average figure the insurance department announced.

A 47-year-old male who does not smoke would be charged, on average, $307 per month, Kliff noted, citing a sample plan filing by Indianapolis-based Anthem. A sample plan filing from Indianapolis-based MDWise predicts a 47-year-old man will be charged $294 for a bronze plan or $391 for a somewhat better silver plan.

What those rates still leave out, however, is the impact of the subsidies. Obamacare promises that customers with incomes at the federal poverty limit will pay no more than 2 percent of their income for health insurance premiums. The subsidies will cover the rest.

That exposure slides up to 9.5 percent for Hoosiers making 300 percent to 400 percent of the federal poverty limit.

So let’s take an average case, right in the middle of that income range. Let’s say a 47-year-old adult non-smoker, making 250 percent of the federal poverty limit—or $28,725 per year—buys a silver plan on the exchange. He or she will be required to pay no more than 8.05 percent of his or her income for that coverage That means he or she will pay no more than $2,312 per year, or about $193 per month. You can do the calculation for yourself here.

The average individual premium for similar coverage last year was about $210 per member per month, according my analysis of Anthem's filing with the department of insurance. So my average 47-year-old would save $17 per month, or about $204 per year.

If we used a family of four with two adults and two kids, this time making 300 percent of the federal poverty limit ($70,650 per year), they would pay no more than 9.5 percent of their income, or $6,712, on insurance premiums.

That punches out to be $140 per member per month—much lower than the $210 average from last year. See the calculation here.

Now perhaps my average cases weren't so average. That may mean my estimates of savings are too high.

The point is, however, that the Obamacare subsidies will negate most of the premium increases for most Hoosiers that qualify for a subsidy to buy individual coverage next year.

Now, is that good public policy? Maybe, maybe not.

Will it overwhelm the new streams of tax revenue created by Obamacare–not to mention the taxpayers themselves–if repeated in 50 states and allowed to continue for many years? Maybe.

But it’s important to note both the benefits as well as the costs of Obamacare if we’re going to have sensible discussions about its merits as a public policy.