The Massachusetts (health care) experiment (pg. 2)

  @Money June 4, 2013: 9:28 AM ET

Buying insurance solo is cheaper (although maybe not in your state)

After Christina Carico, now 46, of Newburyport lost her job as a corporate trainer in 2012, she was able to put one worry behind her: the fear of finding affordable health insurance.

She bought a $450-a-month policy on Massachusetts' Health Connector, the online exchange where residents can compare and sign up for policies. That price was about 25% less than what she would have paid to stay on her former company's plan under COBRA, and she can keep her policy for as long as need be -- a godsend for Carico, who has since switched career paths.

She recently earned a master's in education but has so far been able to land only part-time work without benefits while she applies for full-time jobs. Having her own individual plan, says Carico, "has allowed me to work in a high-need area that is fulfilling."

Related: Obamacare premiums in California lower than predicted

This option to buy health insurance online the same way you might compare airline tickets is coming to all 50 states in October. In Massachusetts what you see on the exchange are primarily state-approved standardized plans grouped into four tiers: gold, silver, bronze, and young adults. Deductibles, co-pays, and co-insurance pretty much run the same across each tier, with the nine insurers competing on premiums, in-network doctors and hospitals, and customer service, says James Roosevelt Jr., CEO of Tufts Health Plan. The better the tier, the higher the price, and the lower the deductibles.

For a family of four, for example, you might pay $1,850 a month for gold, $1,500 for silver, and $1,050 for bronze. With diabetes, your annual out-of-pocket costs with a gold plan could be $510, estimates the Robert Wood Johnson Foundation; with bronze, they could be $3,370. Only 8% of buyers go for the gold -- more than half snap up bargain bronze plans.

You don't have to buy your plan through the exchange (unless your income qualifies for a subsidized premium), and only about half of unsubsidized buyers do, says Jon Kingsdale, who led the design of the exchange and now consults for other states. While exchange shoppers have proved price-sensitive, he notes, those who buy direct, where comparing plan features is harder, often end up in pricier policies from familiar names.

With so many people still buying directly, the exchange hasn't created the kind of competition that would drive down prices for unsubsidized plans, says Kingsdale. But another factor has: Even before Romneycare, Massachusetts guaranteed that no one could be turned down for insurance; healthy solo shoppers were grouped with the seriously ill when it came to setting premiums.

Reform merged that risk pool with the larger and healthier small-business group -- to the benefit of individuals (and detriment of small companies). Individual plan shoppers are enjoying huge savings -- premiums were 33% lower the year after reform than they would have otherwise been, says CHIA.

More affordable insurance can have real-world ripple effects. Worcester entrepreneur Vladimir Charlemagne, 41, left a corporate job to launch Bright Halo Technologies, a company that creates mobile software to help the elderly and disabled in emergencies. Being able to buy a quality policy for his wife and two kids on the exchange, he says, gave him the confidence to strike out on his own: "I have been able to work on something I really want to without jeopardizing my family."

What's in store for you: Here, Massachusetts probably isn't a good guide. Your local insurance exchange may or may not look like Health Connector -- states have until October to roll out their versions. Some, like California, have already announced they'll follow Massachusetts' lead and standardize plans to make shopping easier; others, including Texas, have opted out of creating their own exchange. Instead, the federal government will run one. So any insurer will be able to sell plans that simply meet minimum standards. And your prospects for savings if you buy insurance directly are murky at best.

You'll have a better sense of the price tag this summer, when states announce details about the exchanges, but early signs point to premium hikes.

"Insurers will err on the side of overpricing and then rebate funds if they have to," says Robert Hurley, senior vice president at eHealthInsurance.com. With a bare-bones policy now, you'll have to trade up to more comprehensive coverage required by Obamacare.

While the average family plan today costs $412 a month, says eHealthInsurance.com, a plan with a similar level of benefits would set you back $605 a month. What's more, the actuarial consulting firm Milliman predicts that an influx of sick people qualifying for coverage could raise premiums by 20% to 45%.

Not all will pay more. If you buy a solo plan in one of the four other states that already guarantee coverage -- New York, Vermont, Maine, and New Jersey -- your premiums could drop in 2014, as more healthy people join that pool.

Also, under Obamacare, insurers can't charge older buyers more than three times what younger shoppers pay (a 5-to-1 or 7-to-1 ratio is typical now). So while the young and healthy will probably see premiums rise, those 50 and older could catch a break. "Reform's winners will be early retirees," says Hurley.

Small-business owners have been taking a hit

For every delighted individual insurance buyer in Massachusetts, you'll find a disgruntled small-business owner. Premiums for small-business policies climbed by double digits four out of the first five years after reform, according to the Retailers Association of Massachusetts. Brookline planner Tow has seen small-business clients ax raises, bonuses, or similar perks to cover insurance. "They had to cut back on other areas that were not mandated," he says.

Rising health care costs in general are partly to blame. The risk pooling that brought down the price of solo plans nicked entrepreneurs. And business owners also point to the requirements that state legislators have added.

Related: 6 companies cashing in on Obamacare

"Every specialty group in the state came out of the woodwork and said, 'You've got to make sure our coverage is included,' " says Jon Hurst, president of the retailers association. An analysis for CHIA estimates that up to 4% of insurance premiums go toward benefits that firms wouldn't otherwise cover, such as autism counseling.

Small-business owners, accustomed to using insurance brokers to tailor policies to their needs, haven't flocked to the standardized policies on the exchange, undermining any pricing pressure from insurers going head to head online.

At Mill City Environmental in Lowell, founder Brian Chapman has watched his company's premiums climb every year. With about a dozen employees when Romneycare took effect, the waste-management firm was just over the cutoff for avoiding insurance. So Chapman introduced a plan for his workers and their families, picking up 50% of the premium (the state typically requires 33%, but 50% is the insurer norm). He was able to swing the cost only because most of his workers already had coverage through their spouses. Only about a third signed up.

"If every employee had accepted it, that could have killed us," he says. Plus, as his company has grown -- he now has 46 workers -- he has gained more leverage with insurers. Still, adds Chapman, "it is just another way you're squeezed."

What's in store for you: One piece of good news for small-business owners: Few states will group you with individual buyers for underwriting purposes, and the benefits you'll have to cover may not be so far-reaching. Obamacare could also bring about a shift in how you offer insurance, though in this case Massachusetts is a cautionary example.

Starting in 2014 or 2015 small businesses can give employees a budget to pick from a few policies on a state exchange, cutting costs in the long run, the hope is, as workers opt for lower-cost plans. The Massachusetts small-business exchange was supposed to do the same, yet the program was killed after a limited yearlong run in which too few businesses signed on.

MORE: A doctor will see you... or someone will

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