Ohioans should expect their health insurance premiums to rise significantly over the coming years.
This–despite the fact that the “Affordable Care Act” (ACA) was premised on several statements made by White House staff, Congressional leaders, the Congressional Budget Office (CBO), and President Obama himself, that the legislation would make premiums more affordable. In fact, they even named the bill “The Patient Protection and Affordable Care Act.”
How do we know that premiums are going to go up? The latest prediction was made on June 6 by the Ohio Department of Insurance, expecting an 88% increase in Ohioans’ premiums, based on the proposed rates submitted to them by insurance companies who want to do business in Ohio. In August of 2011, one of the world’s leading actuarial companies, Milliman, predicted that the ACA would raise Ohio’s premium costs 55-85%. In March of 2013, the Society of Actuaries predicted that the ACA would raise Ohio’s premium costs 81%, one of the largest expected statewide increases in the country.
So why are experts saying Ohio’s premiums will rise? First, Ohio had relatively low premiums before the ACA. Because of the ACA, Ohio’s costs are now catching up with (and possibly surpassing) the rest of the country–which negates an important competitive advantage Ohio has maintained for years. But more broadly, there are two answers; one is mathematical and the other is philosophical. Below I discuss the math. In future articles in this series, I will discuss the philosophical side and elaborate on my previous discussion on OCR about why the Medicaid Expansion will exacerbate Ohioans’ upcoming premium increases. [Read on OCR: “Cherry-Picking Obamacare.”]
* In this article, I will define “healthy people” as those whose health insurance premium payments exceed their insurance claims. “Unhealthy people” are those who claims exceed their premiums.
Why the Math Is Increasing Premiums
First is a concept called adverse selection. Healthy people are finding ways out of the pool of premium payers, while unhealthy people are working their way into the pool of beneficiaries. The ACA’s risk pool requirements compel the healthy to subsidize the unhealthy. This was supposed to become “affordable” by imposing the individual mandate nationwide, spreading the costs out among the new, mainly healthy, entrants into the pool. It does not appear to be adding up that way at this point.
Meanwhile, under several ACA mandates, the unhealthy have access to more coverage. Again, this simply costs more money, any way you look at it. Keep in mind the supply and demand aspects of additional coverage: the ACA will greatly increase the demand for coverage, while the supply of medical services is likely to remain stagnant or decrease. Doctor and nurse shortages are already common throughout the country, particularly in Ohio. Basic economics advises that this will further drive costs up.
But what about out-of-pocket costs for the beneficiaries of the ACA? The ACA’s subsidies and community ratings were supposed to keep out-of-pocket costs down for the unhealthy. The merits of that supposition have been substantively challenged as well. First, the Obama administration has openly acknowledged that subsidies themselves—the ACA is heavily laden with them—drive up costs by eliminating the incentive to economize. It is entirely likely that more subsidies will merely drive up prices more—requiring even more subsidies. Many respected commentators believe this is not only a problem, but the primary problem with American health insurance today. If this is a problem, the ACA greatly exacerbates it.
Next, costs are expected to rise based on the history associated with the ACA’s “community ratings mandates.” Community ratings are requirements that insurance companies pool certain groups together in the individual and small group market, in an attempt to mimic the effects seen in the large group markets. The ACA’s community ratings were premised on the idea that large group coverage was doing well in America and that the problem was small group and individual coverage. The common risk pools, which apply only to small group and individual coverage, were supposed to make those markets function more like the large group pool.
Currently, we really do not know for sure how community ratings are going to turn out. However, in the 1990’s, eight states tried guaranteed issue (i.e., requiring companies to cover those with preexisting conditions), combined with community ratings models similar to those mandated by the ACA. According to a report done by respected health actuary (Milliman), the results were that people with poorer health received more payouts while paying increased premiums, while healthier people paid “dramatically” higher premiums. Insurance companies fled the market, enrollment in individual insurance decreased, and individual health insurance markets “deteriorated.”
The ACA purports to solve this problem by implementing the community ratings and guaranteed issue on a national scale, plus adding the individual mandate. In my next article in this series, I will discuss whether the ACA’s individual mandate solution will solve the problems identified here. I will analyze how implementation of ACA-type legislation drove Massachusetts’ health system to become the most expensive in the country. Later in this series, I will discuss how the Medicaid expansion exacerbates this problem and the philosophical differences between conservatives and liberals on how medical insurance and care should be delivered in this country. Finally, another article will address the consequences of the employer mandate delay and its effect on this analysis.
All opinions expressed belong solely to their authors and may not be construed as the opinions of other writers or of OCR staff.
Related on OCR: “Cherry-Picking Obamacare.”
Related on OCR: “Is Medicaid Expansion a Legal Trap for Ohioans?”
Related on OCR: “Medicaid Expansion Tied to Anti-Life Policies”