Affordable Care Act Will Raise Premium Costs for Some

Today’s Managing Health Care Cost Indicator is 190%

Health insurance is all about pooling risk, and the Affordable Care Act mandates that the difference between the health insurance cost of someone at highest risk and someone at lowest risk can’t be more than a factor of 3.

This is great – because it means that those who are late middle age and those with known existing and expensive illnesses won’t be priced out of the insurance market.  However, it’s also bad – because someone has to pay the excess bill.  That someone is those at the lowest risk.  If those at lowest risk opt out of health insurance, the insurance premiums will be so high that insurance will be unaffordable. That’s the death spiral that health plans fear.  

The lowest risk Americans are men in their 20s. They need (and receive) little preventive health care, and most of their medical expenses cannot be anticipated in advance. We want them to be insured both to subsidize others and to be sure that in the rare event they have coverage in the rare and unexpected event they have significant medical expenses, such as accidents and cancer.   

The conservative American Action Forum surveyed insurers with a promise of anonymity, and found that the average 27 year old male nonsmoker’s rates would almost triple – (increase by 190%) under the Affordable Care Act.  Of course, many 27 year old nonsmokers will be eligible for federal subsidies.  The AAF concluded that health insurance premiums would decline by 40% for an older woman with known health problems.

The Forum hasn’t yet posted its research – this blog post is based on a Politico story published this morning.  The Forum is not a neutral party; Douglas Holtz-Eakin was a Romney and McCain supporter and fought against the Affordable Care Act.

The Affordable Care Act is focused on getting more Americans meaningful coverage. While it includes a number of mechanisms to lower the overall cost of care – that’s not its main purpose. 

Health plans are already urging federal and state regulators to increase penalties for those eligible who do not enroll in health plans when they are eligible. These penalties could include waiting periods and/or higher out-of-pocket costs or higher premiums for those who don’t sign up.  It’s possible that the federal subsidies will be enough to address this issue, and we should carefully monitor uptake of health insurance by men in their twenties.

In Massachusetts,the uninsured rate plummeted even with  a cap in the difference in premium between the highest and lowest risk individuals and very modest penalties.