Health exchanges will not lower insurance costs

Using an obscure and debatable methodology, ASPE claims to demonstrate that the cost of insurance in the Affordable Care Act’s new health exchanges is actually going to get cheaper.  This is a sales job dressed up in Ph.D. talk. 

The target audience is the media, who are supposed to convey these hyped-up findings to a credulous youth.
 
ASPE asserts that the lowest rate filings in ten state health exchanges reporting to date are 20 percent below ASPE’s earlier estimates (derived from a 2012 CBO estimate) of what average costs would have been in the absence of the ACA.  Those inflated estimates assume that people would have purchased ACA comparable plans without the ACA mandates.  ASPE thus tries to make an “apples to apples” comparison of plans available before ACA and after.

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ASPE’s study is an interesting academic exercise, but it bears little relevance to the reality of what was purchased and what will be purchased at what price.  Will coverage be more comprehensive?  For many, the answer is yes.  Will it be more expensive?   For most the answer is almost certainly yes.  The misimpression from ASPE is that health premiums—especially for youths—are going to come down based on what most pay this year.  Yet nothing could be farther from the truth. 
 
Comparing average costs in 2013 to rate increases in 2014 is a more accurate picture of what consumers will face next year.  In Ohio, average individual rates will increase by 41 percent.  Maryland’s largest insurer announced their rates would be 25 percent more in 2014 than 2013.  In California’s individual market, rates will increase by about 81percent.  Reports from Rhode Island and Vermont show more modest, but similar trends. The one possible exception is New York, whose rates are already 37 percent higher than the national average.

The reasons for rate inflation are easily understood.  Almost every major change envisioned in the ACA—from its excise taxes, to its rating rules and to its minimum benefit requirements—stokes rate inflation.  In addition, subsidizing demand for health services will create scarcities that drive up medical costs.  The American Society of Actuaries (SOA) estimates that changes in insurance risk pools will drive up the cost of medical care by an average of 32 percent nationwide. 

On the other side, some hope that so many will join the risk pool, rates will come down.  The hope is mainly pinned to young invincibles, those lower cost enrollees who might subsidize the entire pool and lower the average rate. 

So will they join?  Here the problem is the age rating requirements mandated by the Affordable Care Act.  Age rating says, in effect, 20-somethings cannot pay less than one-third of the rates charged to 60-somethings, even though the actual costs of insuring them is only one-seventh as much.  In other words, the new insurance rules envision massive hidden subsidies to early retirees.  One credible study estimates that premiums for young men will rise by an average of 46 percent as a result. 

Most millennials are putting off purchases and waiting longer to make major life decisions.  Younger age cohorts currently see little value in paying premiums for a product they scarcely expect to use this year.  According to CBO, 65 percent of the uninsured are under 35 and report being in good or excellent health.  Will Millennials change their minds now that rates are much higher?  Will the $95 tax on being uninsured (which is much lower than the premium increase caused by age rating) sway their decisions?   Stay tuned.

ASPE’s portrayal of double-digit premium increases (against low single-digit wage gains) as somehow being good news is another example of Administration cheerleading—a sales pitch designed to prod young people into buying something they may not like.  Consumers will decide, as they usually do, based on price and product.  Buyer’s remorse seems inevitable.

White is the president of the Council for Affordable Health Coverage, a broad-based alliance with a singular focus: bringing down the cost of health care for all Americans.