Reform: The Affordable Care Act and Insurance Premiums

In 2010, President Obama signed into law the Affordable Care Act, with the goal of expanding coverage to the uninsured while reducing healthcare costs. Unfortunately, a report from the government’s Centers for Medicare and Medicaid Services shows that the law will not reduce costs. In fact, national health expenditures will be higher than they otherwise would have been without the healthcare law.

Consumers will see some of these higher costs show up in their insurance premiums—in fact, it’s happening already. But who—or what—is to blame?

A recent survey of health plans by consulting firm Aon Hewitt found that costs were up 4.7 percent in the individual insurance market as a direct result of regulations in the Affordable Care Act. These cost increases will become considerably more significant in 2014 when the rest of the law comes on line. Accounting firm Milliman, analyzing one state’s insurance market, concluded that individual market insurance premiums could rise by 75 to 95 percent as a direct result of regulations in the Affordable Care Act.

Taxes and Fees

The healthcare law levies billions of dollars in taxes and fees on those in the business of providing healthcare to us. That includes drug manufacturers and importers, medical device companies (such as businesses that manufacture x-ray machines), and health insurers. The government’s Medicare actuary estimates that these taxes will be passed on to consumers in the form of higher premiums.

“Guaranteed Issue” Requirements

The purpose of insurance is to protect against future risks. You can’t wait until your car is wrecked to buy an auto insurance policy, for instance. But new rules in the Affordable Care Act allow people to wait until after they’re sick to buy health insurance. There is a financial penalty for people who choose to remain uninsured, but it is less than the expected cost of a typical insurance policy. As a result, people who are less healthy will purchase insurance, while younger and healthier people will wait to buy insurance until they need coverage. That means we all will pay more for our policies.

Some states already have “guaranteed issue” requirements in place, and evidence shows that insurance premiums are substantially more expensive as a result. During the debate over the healthcare law, both consulting firms and insurers warned that the impact of “guaranteed issue” on premiums would be significant; in the individual market, premiums could be 50 percent higher due to that provision alone.

Want to know more? See this Case Study: Health Insurance in New York vs. Missouri, Nevada, and Virginia