Health plan affordability questioned ahead of ACA coverage expansion

As health insurers prepare to submit 2014 premium rates to state regulators next month, some stakeholders are questioning whether the Patient Protection and Affordable Care Act will be affordable after all.

The worry is that some of the mandates in the law could drive up the cost of coverage so much that many consumers may choose to pay a penalty for failing to get coverage rather than pay steep insurance premiums.

“We're focused like a laser on affordability,” American's Health Insurance Plans CEO Karen Ignagni told Modern Healthcare in an interview. AHIP has been arguing for months that premiums will rise because of a new premium tax, essential health benefits required of individual and small-group plans, and a narrower age-band ratio for rates. The new ratio means that an older individual will pay no more than three times more in premiums for the same plan. As a result, younger people will end up paying more for coverage in 2014 than today. Now, most states have a 5:1 age-band ratio.

Some of Ignagni's concerns were highlighted in a study released Tuesday by the Society of Actuaries. The actuaries found that the cost of medical claims, one of the key factors driving insurance premiums, will rise an average of 32% nationwide by 2017 as a result of an expected change in the individual market composition. The study further predicts that as many as 43 states could see claims costs increase by percentages in the double digits.

HHS Secretary Kathleen Sebelius conceded to reporters at the White House on Tuesday that premiums for some people are likely to rise for those reasons.

But not everyone buys the gloomy scenario suggested in the actuaries' report. Families USA Executive Director Ron Pollack—one of the law's biggest boosters—likewise conceded claims costs will go up but said that's not necessarily a bad thing: It indicates more people will have insurance coverage. And while premiums may go up as well, Pollack said, many of the young people who others assume will reject coverage will be eligible for tax-credit subsidies.

The actuaries' model, though, assumes more complicated factors. In addition to newly insured Americans gaining coverage through the exchanges, higher-cost enrollees from state high-risk pools and employer-based plans will migrate to the individual market, causing insurers to raise premiums, the study predicts.

Many younger people, faced with paying relatively high premiums for coverage or a small penalty for being uninsured, will choose the latter, Ignagni said, defeating the purpose of the Affordable Care Act and further driving up costs for those who are insured.

The increases predicted by the actuaries could also affect small business and their workers, since many small employers are expecting to have their employees gain coverage through state health exchanges.

Bob Graboyes, a senior fellow for health and economics at the National Federation of Independent Businesses, said if the claims costs increase even more than the actuaries predict, some employees may choose the noncoverage penalty and some small businesses may pay a tax rather than continue to offer coverage.

“If there are considerably higher premiums … people will vanish from the system who (feel) they don't need it so badly,” Graboyes said. The NFIB has long been an aggressive critic of the Affordable Care Act—the organization was a lead plaintiff in the lawsuit that put the law before the U.S. Supreme Court.

The actuaries looked only at the individual health insurance market, but premium increases are also expected in the small-group segment, according to Katie Mahoney, executive director of health policy at the U.S. Chamber of Commerce. “Although the report focused on the individual market … (we're) likely to see the same increases in the small-group market because the new requirements (for individual plans offered on exchanges) also apply to the small group market,” Mahoney said.

Large employers, however, are unlikely to stop offering coverage to their employees, said Bruce Richards, chief healthcare actuary at benefits consulting firm Mercer, though companies may change plan designs or shift more costs onto employees.

“Insurance companies have a fear of the unknown” in terms of new members, Richards added. “They will take in people who might have been rejected before … and now fear a disproportionately worse risk,” he said, so their premium pricing will be based on that assumption.

Healthcare utilization will likely be high for a few years after the exchanges go live in 2014, but that doesn't mean healthcare costs will continually rise, said Joseph Paduda, a principal at consulting firm Health Strategy Associates in Madison, Conn., and former executive at UnitedHealth Group.

“Over the first two years, costs are going to be higher and (the ACA) is going to be seen as a failure” by some, Paduda said. “Of course costs are going to be higher, because of pent-up demand. … But after that, demand (for many) procedures will come down significantly.”