by: Clelland Green
There are three key pieces of the Affordable Care Act which will cause health insurance premiums to rise faster than they would otherwise.
- Guaranteed Issue – The mandate will ease this expense, but providing everyone coverage regardless of their health will cause premiums for people who are healthy and presently buy their own insurance to skyrocket. This impact will be felt in the individual and small group markets and not in the large group market.
- More Demand without An Increase in Supply – If you significantly increase demand for any service or product and you do not have a corresponding increase in supply, prices will rise. If 30 million more people obtain health insurance (current CBO estimate is between 30 and 33 million by 2016) that will cause an increase in health care demand of at least 5% and possibly more. Most of this increase will come from the expansion of Medicaid which will create supply shortages throughout the country and will be felt particularly hard in urban areas. The result of this expansion will be further cost shifting to private insurance as Medicaid reimbursement rates are significantly below market rates – even heavily discounted market rates. Bottom line, doctors and hospitals will charge private plans more and the premiums for those plans will rise.
- Minimum Coverage – Currently people buy high deductible plans and other health insurance products where the benefits are limited in such a way as to provide an affordable plan. Exchange based plans do not have those features. Aetna’s CEO Mark T. Bertolini gave the WSJ’s health blogan example of a 40 year old Texan currently buying a $5000 deductible policy is paying $189/month and the cheapest exchange plan will cost him more than $450/month. The $3000 premium difference more than offsets the higher out of pocket expenses of the cheaper plan, which are not $3000 more than the bronze plan.
While these provisions may be popular, they are going to have a significant impact on the lives of middle class Americans who desparately need reform that will help control the cost curve.