The entire process of implementing the Affordable Care Act (ACA) has been filled with speculation and uncertainty from the start. First, there was the question of whether the law would even pass; once it did, it needed to survive the Supreme Court's consideration and the November election. But, now there is new speculation: Will the ACA dramatically increase the price the average American pays for health insurance coverage? Insurance companies are saying yes, big time! The Obama Administration and analytical organizations like the CBO and the private Urban Institute are saying no.
Wherever the speculation takes us, it is worth clarifying that New York State is a special case, with different existing insurance practices and requirements than many other states. (In fact, a recent analysis from the Society of Actuaries estimates that claims in New York State will drop by nearly 14 percent.) So... you cannot rely on the national media to make you worry about insurance premiums in New York!
To consider the case of New York, let's first look at why insurance rates may go up in 2014 as the ACA is implemented and millions of Americans enroll in health insurance programs. There are three factors to consider nationally:
- The ACA will make it easier in some states for people with chronic illnesses to qualify for coverage. This prohibition against coverage denials will help people who have been shut out of insurance. Also known as "guaranteed issue," this means that policies must be offered to any eligible applicant regardless of their health status or preexisting conditions. But it could raise rates for relatively healthier people who may have dominated the insurance pools before the ACA.
- The new law will also require every state to use "community rating" in setting insurance rates; this means people with chronic health problems will pay the same as healthy people. (Today, many states use "experience rating," which means that people pay different premiums based on their health status and other demographics.) The law also mandates that young people will pay no less than one-third what the older people enrolled in the same plan pay (currently, the young pay as little as one-sixth what the older people pay because the elders on average spend six times more than the young). So healthier people who are currently enrolled in experience-rated plans may see their health insurance costs go up as new rates are set.
- Finally, the new law requires insurers to cover some services (like mental health) that many policies currently don't cover. This higher quality coverage will be reflected in rates.
In New York State, though, none of these three factors should have meaningful effects on insurance rates. New York has had guaranteed issue and community rating since the mid-1990s. Our state government has for years mandated a long list of services that every insurer must cover, so we should see relatively few changes in New York driven by this new federal requirement. Finally, since our community-rated pools are so dominated by people who have numerous and complicated medical needs, it is unlikely that we will see more chronically ill than healthy people added to the insurance pool as the ACA is implemented.
This is a funny form of good news for New Yorkers: We won't experience large insurance rate increases next year, but only because we have had very expensive rates for a long time!
Another point to remember is that the changes in insurance brought about by the ACA only affect people who buy insurance on their own or work for small employers. These markets are relatively small today in New York: Only around 30,000 New Yorkers are enrolled in the individual market and more than 1.6 million are enrolled in the small group market (meaning less than 10 percent of all New Yorkers are covered through these plans). People who work for large employers (typically ones with 200 or more employees, which tend to self-insure) are essentially unaffected by the new law.
And, let's not forget that people who are currently uninsured will receive help to purchase affordable coverage. In New York, we expect 700,000 people to qualify for federal subsidies to help pay for private insurance coverage. Taking into account these subsidies, most people who purchase insurance on the Exchange will pay less for coverage next year than they would have to pay this year.
Of course, rates could go up in New York next year because of factors that are independent of the ACA. If average health care costs for an insurer's panel of covered lives go up this year because of inflation, these cost increases will be reflected in the company's required next year's premiums. But that would be the case whether the ACA existed or not. In fact, the early signs are that health care spending has been increasing relatively slowly in the past year or so both in New York and in other parts of the country. We need to ensure that this trend continues and that the incentives for improved efficiency embedded in the new law solidify the recent trend toward more modest expenditure growth.
The speculation about changes in the cost of health insurance should end in a few months when new premiums are proposed by insurance companies in New York. We are in that period of watchful waiting once again. But, the smart money says that, in New York State, the ACA should help create more affordable coverage options for individuals than exist today.
Start your workday the right way with the news that matters most. Learn more