Beyond The Politics: An In-Depth Look At ACA’s Early Returns

by Taylor Anderson

 

Heading into the second year of the Affordable Care Act’s (ACA) expanded healthcare system, many Americans are still unaware of what it may mean for them. News outlets are quick to highlight rate changes without providing much context around them, as the ACA remains a political flashpoint across partisan lines. Nevertheless, data is available to help shed light on the early effects the ACA has had on the US healthcare market and to help us understand it’s potential future impact.

Historical US Healthcare Costs

Often criticized as a law that will lead to drastic premium rate increases for individuals, the real story behind ACA may have less to do with current premium increases and more to do with tempering the long-term year-over-year increases in healthcare costs, as evidenced by existing trends.  The cost of healthcare in the United States has risen at a pace between 4-7 percent per year since before the ACA took effect. This cost burden for insurers has largely been passed onto consumers via premium increases. Premiums in the three years before ACA took effect (2008 – 2010) rose by an average of 10% or more for individual consumers according to a recent report.

One supporting explanation for rising healthcare costs is the corresponding increase in quality of care.  Unfortunately, in the pre-ACA timeline the quality of healthcare from a consumer standpoint was largely stagnant or in decline. In one study, the United States ranked last among seven nations in 2004, 2007, and 2010 with regard to equity, access, efficiency, and population health. Working to reverse this trend is a key goal of the ACA. With premiums likely to rise, regardless of ACA impact, the change in quality and access to care will be the true indicators for whether the ACA leads to a more cost-effective healthcare system.

While it will take several years to acquire enough data for a comprehensive understanding of ACA impact, the early signs are positive. For the 2014 enrollment period, consumers searching for healthcare plans had 191 issuers from which to choose across the 36 states with federally facilitated marketplaces. For the 2015 enrollment period, this number has risen to 248 (an increase of almost 30%). In addition to this increase in choice for consumers, the Congressional Budget Office estimates that the ACA will reduce the number of people without health insurance by 25 million by 2016. This increase in choice and availability for consumers should help drive cost-competition among insurers in the marketplace.

The Subsidy Effect

As we investigate increases in 2014 and 2015 rates, critics will be quick to look at any increases as a result of the ACA. However, as indicated above, in the three years prior to ACA implementation (2008-2010), premiums rose by an average of 10% per year. This is indicative of the long-term trend of 4-6% annual increases in the cost of healthcare in the United States. The recent trends in rising premiums as well as data on the new ACA tax subsidies, which help to reduce the actual cost for consumers, must be considered in any conversations about rate increases or decreases in the post-ACA health care market.

One flaw in how the media is reporting on premiums is the tendency to report simply on an insurer’s rate request in terms of an increase or decrease in percent. In reality, this figure provides one insurer’s rate trend over a two-year period; it is impossible to compare one insurer’s rate increase of 15% with another’s decrease of 5% without corresponding dollars.  This post provides dollar amounts, where available, as we discuss the impact of federal subsidies on post-ACA marketplace rates.

For the 2014 enrollment year, pre-tax credit premiums for plans on the federally facilitated exchanges were lower than expected, with the weighted average second lowest silver plan (the benchmark plan) being 16 percent below expectations. For a 27-year old this meant $216, a 40-year old $263, and $558 for a 60-year old. When the tax credits are factored in, the numbers are even more favorable for consumers.

Of the more than 8 million people who selected either a state-based or federally facilitated marketplace plan by March 31, 2014 approximately 6.8 million (85%) selected a plan with Federal tax credits. For these individuals who selected plans in the federally facilitated marketplace (FMM), their post-tax credit premiums were 76% less than the full premium. This amounts to a reduction from an average of $346 to $82 per month. For the 69% of individuals selecting a FFM plan, premium post-tax credits were less than $100. For 46% of them, premiums were $50 or less. In some cases, especially with lower cost bronze plans, the tax credit amount may exceed the cost of the plan, resulting in a $0 premium after-tax credit for the enrollee.

Combined with Kaiser Foundation reports indicating that 57% of the 8 million exchange-insured individuals were previously uninsured, this data on tax credits demonstrates positive trends for both affordability and access to care. All of this is in addition to the fact that post-ACA plans are more robust than their predecessors. The provision for essential health benefits ensures that even premiums nominally higher in the post-ACA world will provide more comprehensive benefits for members.

The Consumer Bottom Line

Prior to the ACA, older consumers with pre-existing health conditions were often priced out of the individual market, had their condition(s) excluded from coverage, or were denied altogether. These policyholders often saw premiums rise significantly when they became ill, and there was no federal safety net or support (e.g. subsidies) to help them combat these costs. All of this contributed to higher costs and lower access to care.

The ACA has had a complex impact on consumers, but when placed within historical trends, it provides more access to care, at a similar premium amount. Even at these comparable premium levels, the actual cost for consumers is lower than reported due to the tax credits. With the help of tax credits, the actual cost of care is both more available and affordable than ever for a large number of consumers. The ACA can be better evaluated as time continues but early returns are promising for Americans.

 

Taylor Anderson is an Associate at Optimity Advisors.