Supporters of the Affordable Care Act told us the law would make medical care and health insurance less expensive. Advocates said there were several reasons. More people will have insurance, including a lot more healthy young people. Competition created by health insurance exchanges will bring prices down. More people would gain access to preventive care.
However, other parts of the Affordable Care Act got less attention. These include some on which we commented earlier. The question is what these changes and others do to the affordability promise. In this last part of our series, we’ll look an issue that is surprising even supporters of the law.
Required Fix #5 – The Affordable Care Act’s Higher Health Insurance Premiums
Despite its supporters’ promises, the Affordable Care Act will lead to increases in the health insurance premiums. For some Americans, the increased costs will be hidden by government subsidies that limit a family’s health insurance to 9.5% of its income, as long as the family income is less than 400% of the poverty level. People who do not qualify for premium subsidies are not as lucky.
Insurance companies and consultants who have worked on health insurance reform agree rates are going up under the Affordable Care Act. In a recent presentation to agents, United Healthcare estimated individual rates would double. Small group rates, they said, may increase 25% to 50%. Other insurance carriers are talking about similar rate changes. In a report for the State of Oregon, Wakely Consulting Group, a Massachusetts firm associated with health reform there, estimated individual premiums will increase between 24% and 38% due to the ACA changes, before premium tax credits.
At Soter, we decided to put the premium ranges to a test. Contact us to request a copy of the results.
Here are just a few of the reasons we believe Americans will see premium hikes.
1. The ACA prohibits using health conditions for underwriting.
This one is nonsensical and one of the biggest failings of the Affordable Care Act. Historically, health insurance has evaluated an applicant’s medical condition, much as auto insurance has considered someone’s driving record. In auto insurance, a driver with an excellent record gets preferred rates over one with many tickets and several accidents. In health insurance, a person with a history of chronic or major health conditions would pay a higher rate than a healthier person. Jonathan Gruber, the MIT economist and chief architect of the Affordable Care Act, now concedes his economic formula did not adequately include this factor and admits the ACA will result in premium increases.
Effective in 2014, the Affordable Care Act prohibits medical history and current health as an underwriting criterion. Insurance companies will only be permitted to consider age, family size, tobacco use and geographic area. Consequently, two 30-year-old men will receive the same premium, even if one is in excellent health and the other has chronic liver disease and cancer. For healthy people, especially healthy, young people, the effect of this community rating method will be significant. Many expect insurance companies will drop preferred rates for healthy people and the associated premium increases will be between 35% and 66%.
2. The ACA institutes more coverage mandates.
The Congressional Budget Office commented in 2010 that premiums for many people might go down by 7% to 10%, provided they had the same coverage [emphasis added]. The problem is that many people will not have the same coverage.
The Affordable Care Act defines ten categories of “essential benefits” insurance policies must cover. These include items many health insurance policies offer as options, including substance abuse coverage, mental health benefits, behavioral health benefits, and pediatric dental and vision coverage. In order to comply, millions of people will have to buy more coverage than they now have. In some cases, it may also require them to buy more coverage than they may want or need. In our tests, we found adding coverage to follow essential benefit requirements tacks on 4% to 26%, depending on the benefit or benefits added.
3. The ACA imposes new taxes and fees.
Beginning in 2014, the ACA imposes a new sales tax on health insurance plans that sell policies to individuals, small businesses and beneficiaries enrolled in Medicare and Medicaid managed care. While one of the goals of the ACA is to make coverage more affordable, the new tax on health insurance will have the opposite effect.
The Congressional Budget Office has said that this tax will be passed along to individuals and small businesses in the form of higher health insurance premiums. According to Doug Holtz-Eakin, former director of the Congressional Budget Office, this tax will add about 3% per year to the average family premium.
4. The ACA caps small business deductibles.
The Affordable Care Act caps deductibles for small businesses at $2,000 for individuals or $4,000 for families. Rather than repeating it here, see our earlier post on the premium impact of this limitation.
5. Subsidies don’t change the costs of products or services.
The Concise Encyclopedia of Economics describes a subsidy as “Financial assistance…to a person or group to promote a public objective…Although subsidies exist to promote the public welfare, they result in either higher taxes or higher prices for consumer goods.”
The Affordable Care Act relies on two government subsidies to make health insurance affordable: expanded Medicaid eligibility and premium assistance credits. Neither changes the cost of health insurance. They simply give financial assistance to promote the idea that government support is creating affordability. In reality, the subsidies shift the financial burden to families that do not quality for assistance and to the government.
The Affordable Care Act needs attention before Americans are priced out of the health insurance that was supposed to become more affordable.
Will you going be able to afford the ACA’s premium increases? We want to hear from you.
What do you think?