Today the Society of Actuaries released a study on the effects of Obamacare, analyzing the number of people that would enroll in various types of insurance as a result of the program and the costs of their doing so. The headline number: 32 percent. That’s the predicted increase in claims costs per enrollee for insurers on the individual market versus what they would have been without the law.
The study assesses “claims costs,” represent the payments insurers have to make on behalf of their customers, not the prices people will have to pay for insurance, though obviously you can expect the latter to increase as the former does. Further, this study is considering costs the individual, non-group market, meaning people who buy their insurance on their own (because they’re self-employed or their employer doesn’t provide it), not those who receive it via an employer (though it assesses how people will move across all these markets). But with those caveats, average costs are going up, a lot.
One big reason this is happening: Sicker and older people, who either could not afford or could not find insurance before the law, will now be able to get individual-market insurance through the exchanges (which, by the way, is a good thing); healthier and younger people whose insurance will now be much more expensive, and who know they can purchase insurance at a later date if they get sick, will be dropping out of insurance altogether. The older, sicker, and riskier the pool of customers, the more insurance will cost — so average increases are big, though they’re much less so for any given consumer.
Most interesting, this shift and the attendant cost increases won’t be that dramatic in states, such as Massachusetts (they tend to be blue), that have tightly regulated insurance markets, because they’ve already seen a lot of it happen. It will be most significant, and the cost hikes most severe, in states that have imposed fewer rules on their insurance marketplaces (they tend to be red).
There are other reasons for differences, too, obviously, like poverty levels, the size of the state Medicaid programs, etc., but the differences in average cost increases are huge. In some places, the SOA predicts an increase much greater than the 32 percent mean: 81 percent in Ohio, for instance; 60 percent in Alabama; 67 percent in Indiana; 80 percent in Wisconsin (see page 7 of the report for the state-by-state numbers. These numbers all assume all the states agree to the Medicaid expansion, which it appears almost all will — if they don’t, the numbers are slightly lower).
In some places, the cost hike is much smaller, or even negative: Claims costs per individual per month are predicted to drop 13 percent in Massachusetts, 14 percent in New York, and 1.4 percent in New Jersey.
For now, the individual, “non-group” market we’re looking at is not a huge market — only 11.9 million people, according to the SOA study — but it’s going to increase quickly, by 115 percent, under the new law, to 25.6 million people, mostly because of people who either can now afford insurance because of the subsidies on offer, or because their employers have decided to drop insurance and pay Obamacare’s penalty rather than provide the more comprehensive, more expensive coverage the law requires. The SOA study predicts that the last group will be significant, that is, a lot of people will leave the group market to get individual insurance on the exchanges, and it’s going to have “a significant impact on costs in the individual Exchange,” they write (We can expect premium and claims-cost increases in the group market, too, because of health-care reform’s new strictures.)
These huge differences are because the states currently have vastly different insurance markets that are allowed to offer different kinds of plans, all of which are going to look a lot more similar once Obamacare bends them into shape. Speaking in very rough terms, you’ll notice that red states are more likely to have cost increases, and the bluest states are the ones that are estimated to see almost no increases at all, or decreases (every New England state decreases, for instance, except small-government New Hampshire). That’s because the latter group already has some of the kinds of regulations (community rating, age-ratings bands, and high-risk pools) that Obamacare going to impose, so a lot of low-risk, low-cost people are already opting out of the market (driving up the average costs), and a lot of high-risk or older people are buying coverage they couldn’t afford or get in less-regulated states. Obviously, there are a lot of factors influencing how disruptive Obamacare will be (including income levels, where residents get their care now, etc.), and it’s going to change things everywhere, but it’s interesting to remember that it’s going to alter the situation more in states that haven’t imposed significant health-care regulations on their own — mostly red states — imposing the greatest cost increases on their residents and insurers (there are notable exceptions: blue California, for instance, has relatively loose insurance rules, and is predicted to see a huge spike).
The increase they’re measuring, as I mentioned, is claims, the cost insurers have to pay out, rather than premiums, what consumers have to pay in — though, of course, you can imagine that a premium increase will be at least as great, if not more. To get from claims cost to premiums, as the study explains, one has to add administration costs and taxes, including the substantial annual fee Obamacare will charge health-insurance providers that collect more than $25 million in premiums each year. You still wouldn’t expect the average insurance premiums to increase that much more dramatically than the cost increases, however, and many Americans on the individual market will now be eligible for subsidies to purchase insurance on the exchanges. But studies suggest that some particular groups will see dramatically higher premiums — increases much greater than the 32 percent average number — because new rules will prevent insurance companies from giving better rates to younger or healthier people or offering bare-bones plans, to the point where even some people who receive subsidies will be paying more in premiums than they did before the law was enacted.
A study in Contingencies, the magazine of the American Academy of Actuaries, for instance, found that premiums will increase by as much as 40 percent for individuals 21–29 buying plans as individuals, and 30 percent for those 30–39. According to those projections, the exchanges’ new subsidies, provided as tax credits, mean that individuals in those age ranges making less than 250 percent of the federal poverty line, approximately, should be paying less out of pocket for insurance, but those making more than about 250 percent of the FPL will actually pay higher premiums after subsidies than they did before the law without subsidies, on the order of the increases just described, 30 to 40 percent. (If nothing else, health-care reform sure is getting actuaries a lot of free publicity.)
The study also provided an estimate of how much the president’s health-care law can be expected to expand coverage: By their reckoning: “After three years of exchanges and insurer restrictions, the percentage of uninsured nationally will decrease from 16.6 percent to between 6.8 and 6.6 percent, compared to pre-ACA projections.”