Under the ACA, will YOUR Insurance Premiums Rise or Fall?

Today, many Americans are asking: will my premiums go up in 2014?

There is no simple answer.

According to Families USA ,the Affordable Care Act (ACA) will have a positive effect on the typical family’s budget. Using an economic model that can factor in all provisions of the Act (ACA), Family’s USA estimates that by 2019, when the law is fully implemented, “the average household will be $1,571 better off.”

Even high-income families will save: thanks to rules that limit co-pays, and reward providers for becoming more efficient, “those earning $100,000 to $250,000” will spend $779 less on medical care.” But these are “averages.” They don’t tell you whether your health care costs will rise or fall.

The answer will depend on: your income, your age, your gender, who you work for, what state you live in, whether a past illness or injury has been labeled a “pre-existing condition,”  and what type of insurance you have now: 

If you work for a large company:

–  The ACA will have a “negligible” effect on your premiums says the Congressional Budget Office(CB0). This doesn’t mean that your costs won’t climb at all in 2014. As  long as medical product-makers and providers continue to raise prices, premiums will edge up each year.

But in 2012 average premiums for employer-based insurance rose by just 3% for single coverage and 4% for families, a “modest increase” when compared to 8% to 12% jumps in past years. And on average, employee co-pays and deductibles remained flat.

Granted, a 3% to 4% increase still outpaces growth in workers’ wages (1.7% percent) and general inflation (2.3%) percent).But as reform reins in spending annual increases for large groups could fall to 2%–or less. 

If you work for a small company with more than 50 employees:

Your boss will be more likely to offer affordable benefits, in part because, if he doesn’t, he will have to pay a penalty

Moreover, he will find insurance less expensive. Today, small businesses pay 18% more than large companies because the administrative costs of hand-selling plans to small groups are sky-high. But starting in 2014  businesses with fewer than 100 employees will begin buying insurance in “Exchanges” where they will become part of a large group, and eligible for lower rates.

 

If you work for a small firm where many employees are older, female, or suffer from a “pre-existing condition”:

 your premiums may well fall. Today, most states let insurers charge small firms more if many of their workers are older or are women.They also can jack up premiums if just a few workers fall ill or are injured. . 

This post originaly appeared on healthinsurance.org.  To find out more about the importance of where you lilve, whether you are a woman, whether you are young (20-something to 30-something) or older (in your 50-65), your income, and your health status please click here.

I you like, you can return to HealthBeat to comment.

14 thoughts on “Under the ACA, will YOUR Insurance Premiums Rise or Fall?

  1. Sadly, they are already incredibly high and no doubt, they will continue to go up. Equally as sad: In many cases the coverage, because of high deductibles, is terrible.

    And, the ACA will not be affordable for the U.S. government too. Will it bankrupt the U.S? I don’t know. Only time will tell.

    Sad, sad, sad.

    • Ken–

      I’m not sure if you read the post. You seem to be ignoring all of the facts in the post, and simple
      repeating what you believed (or had heard on TV) before reading thepost.

      For example, both individuals buying their own insurance and those who work for
      small businesses will find their deductibles limited to $2,000. If they have low incomes, their
      out-of-pocket spending will be even lower. There will be no co-pays for preventive care.
      Growth in the cost of employer-based insurance has already begun to slide and is likely to slide further
      because of changes in the ACA.(For instance, companies that make prescription drugs will no longer be able to
      pay off (bribe) generic drug makers to keep their less expensive products off the market.This is one of
      dozens and dozens of reforms that will cut costs.
      Finally, the ACA won’t “bankrupt the country.” As the Congressional Budget Office points out, the ACA
      pays for itself through fees that drugmakers, device-makers, hosptials and insureres have agreed to pay
      (because they will be getting many new customers), and through a new tax on individual earning over $200,000 and couples earning over $250,00.
      The Funding for the ACA is IN THE BILL.

  2. I learn something new every time from your responses to readers, thank you Maggie.

    Are the hospitals and insurers going to write checks to the federal government for the ‘fees’ that you describe?
    I thought that they had agreed to hold down prices, I was not aware they were going to cough up real dollars.

    How much are the fees in total? $10 billion would not be much, is the total higher?

    And of course, will the hospitals and device makers and insurers just turn around and recover what they have paid from consumers?

    Also, I was not aware that the suppression of generics would be outlawed, or least restrained. Where can I read more about this?

    bob hertz

    • Hi Bob
      Thanks for reading the comments. I learn things when I write them, which is one
      reason why I appreciate readers’ comments and questions.

      Yes the total that drug-makers, device-makers, insurers and hospitals are kicking in is much higher than $10 billion. It’s $107 billion in new fees. They can afford to contribute to reform because they know the legislation will bring them millions of new customers. When negotiating with them the Obama administration made it clear that it would stand behind the individual mandate as well as the employer mandates. This is why the health care industry agreed to contribute to the cost of care.

      Won’t drug-makers, device-makers,insurers and hospitals just turn around and pass the cost on to customers? No–for a few reasons. First, insurers now have to pay out 85% the premiums they receive in reimbursements for healthcare (when covering large groups, 80% when covering small groups.) This means that if they hike premiums by $1, they can keep only 15%. (If they don’t pay out 85%, they have to send rebates to customers which they have already begun doing. This is expensive (administratively) and bad PR. So for insurers passing on the cost of fees is no longer as attractive as it once was. Also, the govt has been tough in defining what counts as reimbursements for medical expenses. The insurance industry hoped it could include payments to insurance brokers and agents. The govt. said no.
      Insurers’ profit margins will narrow, not only because they have to pay these fees,but because they have to cover all essential benefits, and cover preventive care without co-pays. Moreover they will no longer be able to charge people more because of pre-existing conditions..
      This means that insurers will be getting much tougher when negotiating with drug-makers,
      device makers and hospitals. Right now they over-pay many brand-name hospitals, over-pay for popular drugs and Way overpay for many devices. In recent years, they’ve been passing the cost of over payments along to us in the form of higher premiums. Now they are going to push back. (This is one reason why big insurers are consolidating. By coming bigger they will have more market clout when negotiating with hospitals, drug-makers and device-makers.)

      Thus, hospitals and companies that make drugs and devices won’t be able to pass those fees on to us. When nearly everyone has insurance, the only way to pass on the costs is through insurance companies.

      Finally, on that fact that drug companies paying off companies that make generics to delay bringing their products to market (it’s called “pay for delay”) , the Center for American Progress writes about this in a report on how to cut Medicare spending. I’ve just posted about it here http://www.healthinsurance.org/blog/2013/01/25/is-pain-free-medicare-reform-possible/(you'll find the link to the report in the post.)
      I’ll be putting up a shorter version of this post on HealthBeat today.

  3. I didn’t know about that “pay for delay” coming to an end. That’s good to know. (The link above, incidentally, leads to a “page not found” link — right blog but no post.)
    I guess Amgen slipped that last little lick in for their ESRD expensive drug before the deadline.
    Informative post, as Bob Hertz said.

    • John –
      “Pay for delay” is not necessarily coming to an end. What I said in the post is that this
      is one of CAP’s recommendations.

      Since the administration listens to CAP (see my post on CAP) and “pay for delay” is very, very hard
      to justify, it would seem likely that this is one piece of waste in our health care system that both the administration and
      Congress could agree on eliminating.

      The link is http://www.healthinsurance.org/blog/2013/01/25/is-pain-free-medicare-reform-possible/
      (I just tried it and it works for me. Maybe there was a typo in the link in my earlier comment/)
      Let me know if it still doesn’t work for you.

  4. I think it’s important to note that the minimum MLR rules do NOT apply to self-funded employer plans for which insurers provide administrative services only. These ASO fee based, as opposed to fully insured risk based, contracts account for 55%-60% of commercially insured individuals these days. They also don’t apply to stand alone dental and vision plans.

    Many states already impose premium taxes on health insurance plans. These taxes, plus the new federal taxes on insurers intended to help finance the ACA, can be deducted from premium revenue for the purpose of calculating the MLR for an insurer’s individual and small group business within each state where it operates.

    All existing state insurance benefit mandates and any new benefits that must be included as part of the essential benefits package will be factored into the price of the policy. Nothing is free nor should anyone expect it to be.

    There is still a lot of uncertainty around how the so-called 3 R’s will work – risk adjustment, reinsurance and risk corridors. Since there is a lot new and unknown as reform takes full effect in 2014, I would expect insurers to price policies on the high side to mitigate as much of that risk as possible. They would much rather see their MLR come in below the mandated minimum and have to pay a rebate to policyholders than underestimate their costs and not be able to carry forward any MLR above the minimum into the following year.

    I don’t think it’s fair to tell insurers that your potential losses are unlimited but your profits will be capped based on having to meet the minimum MLR test each year. It would be more appropriate to allow insurers to carry forward excess MLR’s in tough years and offset them against better than planned results in good years. I think the business is competitive enough as it was before these rules took effect but if we’re going to have them, the target should be based on results over a rolling five year period.

    • drrjv–

      The link you provide is to an op-ed (opinion piece)–not a news article.

      In the opinion of the authors “something will have to give” because insurers can’t run deficits– they will have to hike premiums in order to hike profits.

      They are mistaken. For-profit insurers can also either get into another business,or close their doors.

      Wall Street anticipates that many small insurers will go under or be acquired by large insurers.

      Meanwhile, the large insurers are focus on building their business abroad (mainly Asia) where they will be able to make a profit because they won’t be required to insure sick people, provide essential benefits, etc. etc.

      Meanwhile very recently 22 non-profit insurers have sprung up nationwide. Since they don’t need to return a profit to investors, many will thrive under the new rules– just as non-profits like
      Kaiser and Peugot Sound thrive.

      In addition, some large insurers like Aetna will form accountable care organizations with hospitals and doctors and focus on keeping patients well–and out of the hospital, but emphasizing preventive care and managing chronic diseases (something Kaiser does very well in Northern California, Colorado in particular).

      If they succeed, the insurer and providers will share in the savings.
      In the future, then, health insurance in the U.S. will be made up of : non-profits & accountable care organizations.

      This is already happening in Mass where, by the way, premiums have begun to fall. Two large insurers recently filed with the state for permission to DECREASE premiums.

  5. Regarding fees paid in by insurers, hospitals, and drug ompanies, is that $107 billion a year or $107 billion over 10 years?

    If it is the latter, i.e. $10.7 billion a year, isn’t that kind of budget dust? The new ACA subsidies and the expansion of Medicaid (which I desperately hope we still get) will cost over $100 billion a year.

    thanks

  6. Barry

    Most large corporations that self-insure large groups already pay out 85% of premiums in the form of benefits.

    Whether or not some think it’s fair, the fact is that, going forward, insurers’ profits will be capped. Wall Street analysts understand this:

    “A key risk to insurers is that insurance exchanges will lead to commoditization of insurance products, making product offerings highly standardized. This product standardization along with a framework for strong government price regulation will … lead to very low profit margins for the carriers in the long run.”

    This is why the large for-profit health care insurers are now focusing on building their businesses abroad (mainly in Asia ) They know that, at home, the business will no longer be very profitable.

    Finally, you say that you would expect “insurers to price policies on the high side.”

    Last year, and this year, some will be inclined to do this, in a last-gasp attempt to rake in profits. (Especially those insurers who know that they will have to get out of the business in 2014.)

    But in 2014, the competition for the newly-insured– particularly millions of young newly-insured Americans–will be stiff.

    Since health insurance will be standardized (all will have to cover essential benefits, follow the same rules on
    out of pocket spending, etc., ) they will have to compete on price.

    This means that they will be under great pressure to lower premiums. (And they will have to off the same premiums to all young and 40-something customers. .

    .They will be able to charge customers who are 50-64 year-olds 3 times as much as they charge a 25-year-old. But today, in s some states, they can charge that older customer 5 or 6 times as much.

    The only way to cover lower revenues from older customers is to attract more younger customers with lower premiums for comprehensive plans that must cover all essential benefits. .

    Insurers s will do this by pushing back against the drug-makers, deice- makers, hospitals, etc. they that they have been.over-paying.
    It will no longer be easy to pass on these over payments in the form of higher premiums.

    See the sections of the Center for American Progress (CAP) report on accelerating the movement away for paying fee-for service (paying for volume) to paying for value.

    The CAP report is offering very conservatives estimates of what could be saved.

  7. Bob-
    That’s $107 Billion over 10 years.
    In ADDITION TO THE $640 BILLION that the ACA SAVES and Raises in other ways listed here: :
    – $210 billion generated by lifting Medicare taxes for high-income individuals with adjusted gross
    income above $200,000 and married couples earning over $250,000, (this has nothing to do with the “fiscal cliff” tax increase that will apply to people earning over $400,000)
    – $145 billion saved, over a period of ten years, by phasing out overpayments to those private sector
    Medicare Advantage insurance companies that are not delivering value for health care dollars;
    – $107 billion in new fees that insurers, drug makers, and medical device companies have agreed to
    pay;
    – $69 billion in penalties paid by employers and individuals who choose not to purchase insurance;
    – $36 billion saved by cutting government subsidies to hospitals that will no longer be forced to
    absorb the cost of treating 32 million uninsured Americans (these subsidies, paid to hospitals that
    serve a “disproportionate share” of low-income patients, will be cut for a total projected savings of
    $57 billion between 2012 and 2021, according to CBO);
    – $32 billion raised by taxing very expensive (“Cadillac”) health insurance policies that cost more than
    $27,500 for family coverage, or $10,200 for an individual;
    – $23.6 billion paid by producers of black liquor (the wood pulp byproduct that paper companies use
    to power their mills), which will no longer be eligible for the cellulosic bio-fuel producer tax credit (this doesn’t have anything to do with healthcare, but is something that Republicans and Democrats agreed should be done and was included in the ACA.
    –$20.7 billion saved by eliminating the Medicare Improvement Fund (the ACA creates a new
    Innovation Center within the Centers for Medicare and Medicaid Services, making the Medicare
    Improvement Fund redundant);
    –$19.4 billion saved by limiting the use of medical savings accounts (MSAs), health savings accounts
    (HSAs), flexible savings arrangements (FSAs), and health reimbursement arrangements (HRAs) as
    tax havens for dollars that may never be used to pay for medical expenses
    – $19 billion saved by reforming the student loan program, expanding Pell Grants, while eliminating
    the federal program which provides guarantees for student loans made by banks, replacing them
    with loans made directly by the government
    – $15.2 billion generated by lifting the threshold for the itemized medical expense deduction from 7.5
    percent of adjusted gross income to 10 percent
    – $10.7 billion saved by reducing the Medicare Part D premium subsidy for seniors with incomes over
    $85,000 and couples earning more than $170,000;
    –$4.5 billion saved by eliminating the tax deduction for employers who receive Medicare Part D
    retiree drug subsidy payments
    –$2.7 billion raised by collecting 10 percent excise tax on indoor tanning services
    –$2.6 billion collected from private insurance plans that will pay a fee equal to $2 for each individual
    covered to finance the Patient-Centered Outcomes Research Trust Fund;
    –$75.1 billion in savings that the right-leaning Tax Foundation describes as flowing from
    “Interactions between Medicare programs” ($29.1 billion) and “Associated effects of coverage
    provisions on revenues” ($46 billion).

    This is a total of roughly $750 billion in new revenues and savings that we can count on. These are hard numbers– they don’t depend on a pilot project succeeding or
    hospitals becoming more efficient, or patients coming around to understanding that certain tests do them no good. This is $750 billion that CBO could score. with some
    confidence, based on known facts and solid historical data. For instance, companies in the health care
    industry already have agreed to pay a certain amount in new fees, and CBO can project how much changes
    in tax law will bring in by consulting IRS records.
    In addition, CBO.

    In addition to that $750 billion, CBO lists another $196 billion that will be saved as Medicare trims annual increases (or “updates”) in
    payments to hospitals, skilled nursing facilities, ambulatory surgical centers and other “non-physician. services”
    providers” by 1 percent a year for ten years.21
    If, in a given year, hospitals normally would receive an
    adjustment from the Centers for Medicare and Medicaid Services (CMS) that raised reimbursements by 3
    percent, under the new law their reimbursements would rise by just 2 percent. The legislation explicitly
    exempts doctors, calling for reductions “in payment updates for most Medical goods and services other
    than physicians’ services.”

    Medicare’s goal is to motivate hospitals to create better “systems” that will, in turn, provide better support
    for hospital workers, making them more productive.
    Research done by the Medicare Payment Advisory
    Commission (MedPAC) reveals that, when hospitals enjoy market power and payments from private
    insurers are generous, hospitals spend more.
    By contrast, when hospitals are under some financial
    pressure, they shave their costs and even manage to turn a profit on Medicare patients.
    I call this $196 billion “less certain savings” because no one can know how institutional providers will respond to reduced
    updates, and how successful they will be in implementing systems that will make them more efficient.
    Skeptics suggest that Medicare will not be able to trim updates for the full ten years without pushing
    hospitals into the red.
    But empirical evidence demonstrates that hospitals committed to reducing errors and waste can save billions.
    For example, in the first two years of a safety improvement
    collaborative convened by Premier Inc., the 157 participating hospitals saved an estimated 22,164 lives while collectively reducing health care spending by $2.13 billion. During a period when national inpatient costs rose 14 percent, those of the
    collaborating hospitals increased only 2 percent.24
    If all hospitals could achieve these results, hospitals alone could save $22.6 billion annually.
    Consider the
    additional savings that skilled nursing facilities, ambulatory surgical centers, and other non-physician
    providers could realize, on an annual basis, by becoming more efficient, and it becomes clear that, if
    providers are committed to reducing waste and errors, they could adjust to reduced updates that would save
    Medicare $196 billion over ten years.
    Add that $196 billion to the $750 billion itemized under “Reliable Revenues and Savings,” and the ACA
    generates nearly $1 trillion—enough to pay for the legislation, cover 32 million uninsured, and reduce the
    deficit.

    Finally there is a third category of savings that CBO did not try to score. In their 2011 Annual Report, Medicare’s Trustees point out that the ACA proposes deep structural reforms that could “transform” U.S. health care “in both the way it is delivered and in the manner in which it is
    financed.” The legislation “takes important steps in this direction” the Trustees observe, “by initiating programs of research into innovative payment and service delivery models as ‘accountable care organizations,’ ‘patient-centered medical homes,’ “payment bundling’ and ‘pay-for-performance.’”
    These reforms are unprecedented. Because they have never have been tried on a national scale, CBO did
    not attempt to estimate just how much waste these changes will squeeze out of the system.
    Nevertheless, this is the third and perhaps most important way that reform legislation sets out to “break the
    curve” of health care inflation. The goal is to replace the perverse incentives of fee-for-service payments—
    which reward providers for “volume”—by moving to payment systems that instead reward “value,” more effective care at a lower cost.

    While CBO could not put a number to potential savings, over the long term what cannot be counted may count most. Note that money saved here will be above and beyond the roughly $950 billion in revenue and savings that the CBO was able to score.

    Overall, CBO analysts calculate that the savings and revenues associated with the ACA should generate
    approximately $950 billion or more to cover reforms that will cost roughly $940 billion over ten years
    (2010–2019).

    (CBO breaks down the $950 billion in the cost of reform as follows:
    $434 billion to expand Medicaid and Children’s Health Insurance Plan enrollment,
    $466 billion to provide subsidies so that individuals and families earning less than 400 percent of the
    federal poverty level can buy insurance, and
    $40 billion to provide tax credits for small employers

    After analyzing the numbers, the Congressional Budget Office has concluded that the Affordable Care ACT will more than pay for itself (covering all subsidies and the cost of Medicaid expansion while insuring some 32 million uninsured Americans AND ALSO trim some $20 billion from the federal deficit in the ten years ending 2021.

    At the same time, the law hikes Medicare and Medicaid reimbursements to physicians
    and nurse practitioners who provide primary and preventive care, while raising fees for general surgeons
    who work in under-served areas. Fees for doctors who offer primary care to Medicaid patients will be raised
    to Medicare levels.

    How can the ACA do all of that? As Medicare’s Trustees observed in their 2011 Annual Report, the ACA “contains roughly 165 provisions
    affecting the Medicare program by reducing costs, increasing revenues, improving certain benefits,
    combating fraud and abuse, and initiating a major program of research and development for alternative
    provider payment mechanisms, health care delivery systems, and other changes intended to improve the
    quality of health care and/or reduce its costs to Medicare.”
    Little wonder that no one can sum up the effect of those 165 changes in a page or two. This is why so few Americans are away of how the ACA saves money– the details don’t fit easily into a newspaper story or sound-bites on TV.
    This is why I wrote a white paper late in 2011 putting all of the facts in one place. It is titled “Better Care for Less”
    and you’ll find it here.
    http://tcf.org/assets/downloads/tcf-bettercare.pdf

    (I realize that this reply should probably be a post. I hope to put it up soon.)

  8. Since 2014 will be the first year that both the exchanges and subsidies will be in effect, there is a lot that insurers don’t know about who will actually buy insurance. They are most concerned about adverse selection and they still don’t have clarity around the rules that will govern risk adjustment, reinsurance and risk corridors. This is why they are likely to err on the high side in pricing their policies next year. In addition, I think insurers are likely to take a go slow approach with respect to both the number of markets they choose to compete in and the number of insurance products they offer.

    On its most recent earnings conference call, UnitedHealth estimated that it was likely to participate in no more than 10-25 of the 100 exchanges. Each state that has exchanges up and running will have one for the individual market and one for small groups. Larger states like CA and NY could have more than one of each. The product offerings are likely to be mainly narrow network HMO’s and maybe tiered networks. As the insurers gain actual experience, they can move ahead with more confidence and, if all goes well, expand both their product offerings and the number of markets in which they compete in subsequent years.

  9. To follow up on the insurers’ adverse selection fear, the people most likely to not buy health insurance and pay the penalty instead will be from the young and healthy subset of the population.

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