Reform Update: Rate shock fears may have lost their spark

An analysis released today (PDF) from the consulting group Avalere Health downplays some of the concerns that the healthcare reform law will lead to insurance rate shock for younger people. Avalere argues that potentially higher premiums will be offset by new federal subsidies for people buying coverage on the state exchanges.

“Many of these individuals and family will benefit from new subsidies designed to increase affordability for those earning between 133 and 400 percent of poverty,” the report states. However, Avalere researchers also say that for younger and healthier consumers who currently have coverage in the individual market, the minimum premium for an individual policy will increase in most if not all markets.”

Rate shock fears have been used as ammunition by opponents of the Patient Protection and Affordable Care Act to argue that the law will negatively impact younger people in the form of higher premium rates. The insurance industry also has repeatedly warned of higher rates due to the ACA's insurance rules.

In January, Douglas Holtz-Eakin, the former director of the Congressional Budget Office who is now president of the conservative American Action Forum, estimated rates could rise as much as 169% for young people. A recent study from actuary firm Milliman projects a more modest increase of between 9% and 56% for those between the ages of 21 and 29. The Society of Actuaries projected in March that rates would go up significantly in many states, though they would actually decline in some states.

Avalere estimates that 46% of those currently uninsured and 40% who are insured in individual coverage will be eligible for subsidies in 2014. In addition, the firm predicts that about two-thirds of young adults 30 and younger who do not qualify for Medicaid will be eligible for income tax credits offsetting the price of buying coverage.

“Effective outreach and marketing efforts by the exchanges, health plans, consumer groups and others will be key to educating this population about the availability of subsidized coverage and mitigating the 'rate shock' headlines,” Avalere researchers conclude.

An analysis released today by the Kaiser Family Foundation found that the medical loss ratio provision of the ACA saved consumers $2.1 billion last year. Under the law, insurers must spend 80% of premiums they take in on individual policies on medical expenses and 85% for group policies. Any premium revenue exceeding the MLR cap has to be rebated to consumers.

One little-discussed concern about the implementation of healthcare reform in 2014 is how people who don't have bank checking accounts—estimated to be about 25% of those who will get coverage through exchanges, according to Jackson Hewitt Tax Service—will pay for coverage. Brian Haile, senior vice president for health policy at the tax preparation firm, said that many insurers require direct debits from checking accounts and do not accept credit cards. His solution? Have HHS issue guidance stating that pre-paid debit cards that are used by many low-income Americans must be accepted as payment for premiums. “If the administration is going to make this policy clarification, (it needs to do so) by the end of the month,” adding that such a policy will “take a minute” for insurers to set up. Haile has contacted HHS about his concerns, but so far he has received no response.

Follow Jonathan Block on Twitter: @MHjblock