Recent News and Studies of ‘Premium Shock’
Now that the presidential election is over, and President Obama’s signature initiative, the Patient Protection and Affordable Care Act (PPACA, or simply, ACA) seems permanently entrenched, focus has shifted toward January 1, 2014, when the central component of the ACA, the exchanges and coverage expansion, take effect. This is when ACA supporters and advocates hope the President’s promise to “lower costs for everyone, improve quality for everyone, and expand coverage to all Americans” is realized. However, since then, news reports and studies have brought attention to an ostensibly unexpected result of the ACA: premium rate shocks, especially in the most troubled health insurance market, the individual market, and for the demographic with the least coverage, young adults. Below is just a sampling of headlines (with links) to stories highlighting these new realities of federal health care reform:
State Insurance Officials Raise Concerns About ‘Rate Shock’ For Young People
-- Kaiser Health News, December 4, 2012
Will young adults face ‘rate shock’ because of the health-care law?
-- The Washington Post, February 15, 2013
States worry about rate shock during shift to new health law
-- The Los Angeles Times, February 18, 2013
These news reports of significantly higher rates, averaging 32%, were then confirmed by a study performed by the Society of Actuaries.
Cost of the Newly Insured Under the Affordable Care Act
-- Society of Actuaries, March 2013
Study estimates Obamacare could raise individual claim costs 32 percent
-- Washington Guardian, March 28, 2013
The US Secretary of Health and Human Services, Kathleen Sebelius, the cabinet officer leading federal health care reform efforts for the president, conceded the higher rates:
Sebelius: Some Could See Insurance Premiums Rise
-- The Wall Street Journal, March 26, 2013
Additionally, California’s exchange, “Covered California,” commissioned a consulting firm, Milliman, to study how implementation of the ACA would affect individual health insurance premium rates. This report generally aligns with the Society of Actuaries’ study, confirming rate increases up to 30%.
Middle class to pay more for health insurance, state study shows
-- Sacramento Bee, March 28, 2013
In the run up to passage of the ACA, and even after enactment, the president and many others supporting his vision of reform made wide-ranging promises that, in essence, the ACA would simultaneously expand coverage, improve care, and reduce costs.
Even before taking office, the president-elect’s transition team touted reform:
“Under the plan, if you like your current health insurance, nothing changes, except your costs will go down by as much as $2,500 per year. If you don’t have health insurance, you will have a choice of new, affordable health insurance options.”
Once in office, at the White House Forum on Health Care Reform, the president said March 5, 2009:
"The purpose of this forum is to start answering that question—to determine how we lower costs for everyone, improve quality for everyone, and expand coverage to all Americans. And our goal will be to enact comprehensive health care reform by the end of this year."
“So if you have insurance you like, you’ll be able to keep that insurance. If you have a doctor you like, you can keep that doctor. You’ll just pay less for the care that you receive."
Nor did the talking points expire once the bill safely passed Congress. From the president's speech in signing the bill:
"Once this reform is implemented, health insurance exchanges will be created, a competitive marketplace where uninsured people and small businesses will finally be able to purchase affordable, quality insurance. They will be able to be part of a big pool and get the same good deal that members of Congress get. That’s what’s going to happen under this reform. (Applause.) And when this exchange is up and running, millions of people will get tax breaks to help them afford coverage, which represents the largest middle-class tax cut for health care in history. That's what this reform is about. (Applause.)
This legislation will also lower costs for families and for businesses and for the federal government, reducing our deficit by over $1 trillion in the next two decades. It is paid for. It is fiscally responsible. And it will help lift a decades-long drag on our economy. That's part of what all of you together worked on and made happen. (Applause.)"
Finally, in a speech three months after he signed the ACA, the president stated:
"So this is a long-overdue victory for America’s consumers and patients. And yes, it does away with the status quo that some insurance companies have taken advantage of for so long. But insurance companies should see this reform as an opportunity to improve care and increase competition. They shouldn’t see it as an opportunity to enact unjustifiable rate increases that don’t boost care and inflate their bottom line."
ACA’s Theories to “Reduce Costs”
So what happened? How did a president’s promise for families to save $2,500 on health care costs become a 30% increase in premium rates? After all, what is the point of health care reform to “lower costs for everyone, improve quality for everyone, and expand coverage to all Americans” if it results in higher, not lower costs?
Certainly, while the ACA has numerous, predictable flaws, it was written with provisions designed to reduce costs. In short, the three pillars of the ACA’s strategy focused first on making the young and healthy, generally less expensive to insure, buy coverage through the individual mandate; second, by ensuring “affordability” through subsidizing coverage for those up to 400% of the federal poverty level; and third, enact a series of market reforms to “hold insurance companies accountable.” The first approach seeks to spread costs across a broader pool of insured, presumably healthier and less costly per capita to insure with the infusion of newly insured, healthy young adults. The second approach seeks to ensure participation in the insurance market by offering taxpayer subsidies to those making less than 400% ($94,200 for a family of four in 2013) of the federal poverty level annually. The ACA’s market reforms are designed to reduce market distortions, promote consumer protections, and improve market efficiencies.
ACA Insurance Reforms
The two most important reforms, which bear directly on premium price, are guaranteed issue and rate restriction rules. Guaranteed issue simply means someone cannot be denied coverage due to pre-existing conditions, such as diabetes. The effect of this is to increase overall costs per capita within the pool, since people with pre-existing conditions are actuarially expected to purchase coverage and utilize health care and medical services more so than people without pre-existing conditions, and are therefore more expensive to cover. The ACA’s individual mandate is tied to guaranteed issue, on the theory that if healthier people are compelled to purchase coverage, they will make the pool healthier and less expensive, per capita, than a pool comprised of a larger cohort of people expected to utilize services.
The ACA’s rating restrictions are few, but critical. They restrict insurers to setting premium rates on four criteria: 1) Individual vs. Family enrollment (allowing rates to reflect enrollment); 2) Geography; 3) Age (allowing rates to reflect age, but limiting rates for older adults to no more than three times the rate of younger adults), and; 4) Tobacco use.
Why the ACA is Working as Designed, Even as it Fails on Costs
The ACA’s underlying failure to avoid premium rate hikes lies with the ACA exacerbating market distortions, even as it tried to fix market distortions. The fact is, ACA or not, anti-insurer demagoguery or not, health care coverage costs reflect the cost of providing health and medical care services. This is indirectly confirmed by the Milliman report, which attributes the net premium increase to four components: 1) Medical (cost) trend from 2013 to 2014; 2) Buying more coverage (mandated by “Essential Health Benefits” requirement under the ACA); 3) Affordable Care Act market changes (i.e., guaranteed issue and rating restrictions) and; 4) Premium tax credits (which will reduce premium costs for those receiving the taxpayer subsidies).
It is important to note, regarding medical cost trends cited by Milliman, the ACA offers no meaningful, substantial, quantifiable or immediate relief for underlying health care costs. It does undertake some efforts to contain costs over the mid-to long-term, but the informed observer can be excused from having any confidence in their promised efficacy.
As a consequence of the ACA, younger adults (and others) who will bear the brunt of these ACA-driven premium increases, will be forced into an insurance market in which the available products will be limited to richer benefit plans, whether younger buyers want them or need them or not. These same buyers will also be forced, under ACA rating restrictions, to pay no less than 1/3 the cost of similar health care coverage for older buyers who are more likely to use coverage than younger buyers. Currently, younger adults pay approximately 20% (or a rating band of 5:1) of the cost of a similar premium for a 60-64 year-old. As Timothy Jost, an ACA advocate and the Robert L. Willett Family Professor of Law at Washington and Lee University School succinctly noted, age rating “is going to force younger people to pay more in the individual market as older individuals pay less.”
Failed Promises Exacerbates Public’s Lagging Support
What does this contradiction between the president’s promises to reduce costs and the reality of ACA-driven premium increases mean for the long-term viability of the ACA? In America’s democratic Republic, the final authority on any program’s longevity is not the Constitution, it is the nation’s political consensus that the program is, more or less, working as promised and thus maintaining broad public support. The problem for the ACA and its advocates is, despite the Supreme Court ruling and the president’s reelection, the ACA has consistently been opposed by a majority of Americans. According to the Kaiser Family Foundation’s Health Tracking Poll: March 2013, respondents to the question: “As you may know, a health reform bill was signed into law in 2010. Given what you know about the health reform law, do you have a generally (favorable) or generally (unfavorable) opinion of it?” Responses were: Very favorable: 17%; Somewhat favorable: 20%; Somewhat unfavorable: 13%; Very unfavorable: 27%; and finally, Don’t know/Refused: 23%. Although advocates of the ACA may comfort themselves with the prospect of the 23% of respondents who “Don’t know” growing supportive of the ACA as it unfolds, a recent poll by Quinnipiac University, released Thursday, April 4 suggests this hope may prove fruitless. Quinnipiac found, similarly to the Kaiser Health Tracking Poll, that “Americans voters disapprove 46 - 41 percent of "ObamaCare," the 2010 health care reform act, and say 37 - 15 percent the health care law will hurt rather than help them personally. Another 41 percent say the law won't affect them.” Interestingly, a majority of Democrats, more supportive of the ACA generally than Republicans or independents, do not believe the ACA will help them. In response to this question: “From what you've heard or read, do you think the 2010 health care law will mostly help you personally, will mostly hurt you personally, or don't you think it will have much of an effect on you personally?,” Democrats responded – Help: 27%; Hurt; 11%; No effect: 55%; DK/NA: 6%. Rather than expecting people to grow more supportive of the ACA as they experience it in their daily lives, ACA advocates may be better advised to worry about the long-term erosion of public support for a program for which the president’s promise of “your costs will go down by as much as $2,500 per year” are disproven by the premium bill for mandated health care coverage.
For more information on this report or other Health issues, contact Tim Conaghan, Senate Republican Office of Policy at 916/651-1501 or Tim.Conaghan@sen.ca.gov
 http://www.whitehouse.gov/assets/documents/White_House_Forum_on_Health_Reform_Report.pdf, p.2
 http://www.whitehouse.gov/assets/documents/White_House_Forum_on_Health_Reform_Report.pdf, p.2
 http://www.kff.org/kaiserpolls/upload/8425-C.pdf p.3
 http://www.kff.org/kaiserpolls/upload/8425-T.pdf p.3