With increased attention on the impact of the Affordable Care Act (ACA) on health insurance premiums, a new report from Milliman, Inc. helps explain how the ACA’s coverage expansion, new benefits, and market reforms will impact individual market health insurance premiums in 2014. The report highlights how some provisions will increase premiums while others will make health care coverage more affordable for consumers.
The focus of this report is to highlight the broad range of changes happening in the marketplace and the wide variation in impact that is likely to occur. The report does not estimate the cumulative impact of the ACA on premiums.
Highlights of the Milliman report:
- Covering pre-existing conditions, requiring a broader benefit package, and covering uninsured Americans who have gone without medical care will benefit millions of people while increasing the cost of health care coverage. The new health insurance tax and other fees will also increase premiums.
- Other provisions of the law will make health care coverage more affordable, including premium and cost-sharing subsidies and the transitional reinsurance program, which provides funds to help offset the impact of high-cost enrollees.
- The impact on specific individuals will vary significantly depending on their age, gender, location, health status, income level, and what coverage they have today. The report found that “young, healthy males could see substantial increases due to the combination of the overall rate change and the age/gender rating requirements” while “older, less healthy individuals could see rate reductions.”
- Individuals and families with household incomes up to 400 percent of the federal poverty level (FPL), or approximately $94,200 for a family of four or $45,960 for an individual, will be eligible for financial assistance to help lower total out-of-pocket insurance costs. The Milliman report estimates that those eligible for subsidies will receive financial assistance in 2014 to cover, on average, 40 percent of the premium for the silver plan, and as much as 94 percent for those with the lowest incomes. Bronze plan premiums after subsidy could be as low as $0 for certain low-income individuals.
- The report also notes that millions of people will not be eligible for subsidies and that the amount of the subsidy declines significantly as incomes rise. The Congressional Budget Office estimates that persons with incomes between 250-300 percent of the FPL will receive subsidies sufficient to cover 42 percent of their premium and those with incomes between 350-400 percent will receive assistance to coverage 13 percent of the premium.
- New innovative benefit designs developed by health plans will lead to more affordable coverage options than would otherwise be available. These include wellness programs that encourage healthy living; prescription drug formularies that incentivize patients to choose lower-cost generic drugs when they are available; and the availability of “high-value networks” that are limited to providers with a track record of providing the high-quality care at the lowest cost.
- The report also highlights the importance of bringing younger and healthier people into the system to help keep coverage as affordable as possible:
“When faced with high premiums, younger and healthier individuals may choose to forgo purchasing health insurance until they need it, which will only serve to increase costs for all other individuals in the healthcare system…For the individual insurance market risk pool to remain stable in 2014 and beyond, it is vital that young and healthy individuals enter and remain in the insurance market in addition to individuals with an immediate need for healthcare services.”
Additional resources on the impact of the ACA on premiums:
- Actuaries at Oliver Wyman published an article in Contingencies, which found that “young, single adults aged 21 to 29 and with incomes beginning at about 225 percent of the FPL, or roughly $25,000, can expect to see higher premiums than would be the case absent the ACA, even after accounting for the presence of the premium assistance.” Similarly, the article found that “single adults up to age 44 with incomes beginning above approximately 300 percent of FPL can expect to see higher premiums, even after accounting for premium assistance.” Oliver Wyman presented findings from this report at AHIP’s National Policy Forum in March.
- AHIP’s Policy Forum also featured a presentation by Milliman that provided illustrative examples showing the range of impact the ACA may have on premiums for different populations, both before and after subsidies are taken into account.
- A study by the Society of Actuaries found that “expected changes in member composition of the individual health care market could drive up underlying claims costs by an average of 32 percent nationally by 2017. In addition, the study predicts high variability among states, with as many as 43 states experiencing a double-digit percentage claims cost increase and some states experiencing a double-digit cost decrease.”
- Many state departments of insurance and state exchange boards previously requested formal actuarial and economic forecasts of the impact of the ACA insurance reforms on their states. AHIP compiled many of these independent studies and summarized their findings in a report that is available here. Since this compendium was put together, an additional report was released examining the likely premium impact in California’s individual insurance market.