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Obamacare Sticker Shock

A new survey of major health care insurers, representing the vast majority of covered individuals in the U.S., conducted by the American Action Forum (AAF) answers the question: what impact will the Affordable Care Act (ACA) have on premiums in 2014? This survey aimed to illustrate real cases in a variety of regulatory environments, representing the spectrum of rate changes cross any given geographic area, rather merely average changes across demographics.

The findings highlight the sticker shock in health care premiums that awaits the relatively young and healthy in both the small group and individual markets as the ACA is fully implemented. The survey finds cost of premiums for this group will increase by an average of 169 percent. Conversely, the survey found that the premiums of older and sicker individuals in these markets will be relatively subsidized by the ACA, with that group seeing an average decrease in premium costs of just under 25 percent.

Summary Table: Average Premium Impacts for Individual and Small Group in 2014
Younger and Healthier Individuals and Small Employers
Chicago, IL Phoenix, AZ Atlanta, GA Austin, TX Milwaukee, WI All Cities Average
AVG % Change 173% 157% 164% 162% 190% 169%
Older and Less Healthy Individuals and Small Employers
Chicago, IL Phoenix, AZ Atlanta, GA Austin, TX Milwaukee, WI All Cities Average
AVG % Change -21% -22% -21% -32% -15% -22%
Note: Changes due to insurance market reforms alone and do not include annual medical trend increases. It also does not include the fact that some individuals and small employers experiencing these changes will be eligible for taxpayer subsidies through insurance exchanges

Writing in Medical Progress Today, Manhattan Institute fellow Yevgeniy Feyman observes that “while the sample may not be representative, and average premiums can be nudged one way or the other by high-or-low-utilization beneficiaries, uninsured 20-somethings have every reason to pay the $95 penalty and refuse health insurance come 2014.

“But is there a fix” Feyman asks?

“One idea would be to allow the “community rating” (the provision that requires insurers to charge no more than three times more for an older person than a younger person – this drives a significant portion of the premium increases) provision of the health law to take effect gradually, over several years. This would achieve the goal of lowering healthcare costs through risk pool expansion, guaranteeing that younger people could still get preferential rates on health insurance. While initially there would be no statutory protection for premiums for the older population, by having a broader risk pool from the start, it would slow premium growth.

Others (including insurance companies) have called for a higher penalty to ensure that people don’t skip out on insurance. This may resound with those on the left, but this would leave AAF’s results unchanged.

Proponents of the ACA will, of course, argue that these aren’t the actual costs people will be paying – and they would be correct. Much of the cost, especially for 20-somethings just starting out their careers, will be offset by premium subsidies. But the point is that these costs will still be paid by someone – there’s no free lunch. Effectively, money will flow from non-health related industries into the healthcare sector – when people are forced to pay more money for insurance that leaves them with less money to spend on other goods and services.”




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