State officials have been weighing in regarding the impact of the Affordable Care Act on insurance premiums through the new health insurance exchanges. Initial reports indicate that the impact on the individual market may be dramatic (either positive or negative) based upon the state in which an individual resides. The Indianapolis Star reported that the Indiana Department of Insurance is projecting a 72% rate increase in the individual health insurance market because of the PPACA’s reforms. The July 19, 2013 Indianapolis Star article can be found here. Meanwhile, the New York Times reported that insurance regulators are projecting that New York residents can expect to see a 50% decrease in the cost of premiums in the individual health insurance market. The July 16, 2013 New York Times article can be found here.
Currently, the laws of Indiana and New York that apply to the individual health insurance market are very different. New York presently has one of the most heavily regulated and expensive health insurance markets in the United States. New York law already mandates many of the services that insurers will be required to provide under the PPACA, such as covering essential benefits, on January 1, 2014. In addition, New York currently requires insurers to accept individuals with pre-existing conditions. As a result of the many state law requirements, the premiums in New York have historically been among the highest in the nation. Law professor Timothy Jost stated in the New York Times article, “if there was a state that the Affordable Care Act could bring down rates, it was New York.”
The mandates under the PPACA will impose new and additional requirements on Indiana insurers. In order to provide the services that the PPACA will require, Indiana health insurance providers will likely need to raise premiums. Logan Harrison, Chief Deputy Commissioner with the Indiana Department of Insurance, was quoted in the Indianapolis Star article as estimating that the cost for an individual plan is expected to increase from an average of $255 per month in 2012 to $570 per month in 2014.
Regardless of whether an individual resides in Indiana, New York, or another state, there are additional new taxes and fees imposed by the PPACA that may impact premiums. For example, starting in 2014, the federal government will impose an aggregate $8 billion fee upon health insurance providers. This fee is scheduled to rise to $14.3 billion by 2018, and will increase based upon premium trend thereafter. Although this fee will not be imposed by the federal government directly on individuals, it is likely that insurance carriers will pass this fee along to consumers in the form of higher premiums. Prices are also expected to increase for some individuals under the PPACA due to the law’s community rating rules. Community rating will require insurers to sell insurance to all individuals regardless of health status at roughly the same rate. The PPACA, however, will permit insurers to charge slightly different rates to individuals based on several factors, such as geographical location, age, tobacco use, and whether coverage is being provided to an individual or a family. Under these rules, individuals with significant health conditions will almost certainly see a drop in health insurance premiums in the individual market, but healthier individuals may see an increase in premiums. A discussion of the community rating rules’ effects on the small group market can be found here.
The cost drivers of the PPACA are in a tug of war with the provisions of the PPACA that should reduce cost. The New York Times article credited the anticipated introduction of the individual mandate with some of the reduction in the cost of premiums seen in New York. Additionally, under the PPACA, health insurance marketplaces (or “exchanges”) will be created that will allow individuals to buy health insurance. These exchanges should improve market transparency and efficiency by providing individuals with a one stop shop for health insurance. Ideally, the exchanges will allow individuals to make direct comparisons of different health insurance plans across four different levels of benefit, which are called bronze, silver, gold, and platinum (a fifth benefit level known as a catastrophic plan will be available to young individuals and individuals that are not subject to the individual mandate). The PPACA also provides premium tax credits (“subsidies”) to certain individuals that purchase health coverage through the exchanges, which should reduce costs for individuals seeking to purchase health insurance. Subsidies will be provided to individuals with household incomes ranging from 100% to 400% of the federal poverty line. Individuals with household incomes near the federal poverty line can expect substantial subsidies, but as an individual’s household income increases, the size of the individual’s subsidy will decrease.
Health insurance premiums are incredibly complex under ordinary circumstances. The PPACA will clearly impact the cost of insurance in the individual market, however, the full impact of the PPACA on the cost of insurance may not be known for some time and may vary from state to state.