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Nonpartisan Group Finds Some Health Care Costs May Rise When Affordable Care Act Implemented

Most states could see double-digit increases (Mar. 26)

With less than a year to go before the major provisions of the Patient Protection and Affordable Care Act (PPACA) take effect, new research published by the Society of Actuaries (SOA) predicts that expected changes in member composition of the individual health care market could increase underlying claims costs by an average of 32% nationally by 2017. In addition, the study predicts high variability among states, with as many as 43 states experiencing a double-digit percentage increase in claims costs and some states experiencing a double-digit cost decrease.

“The projections in this study suggest that when the dust settles by 2017, we can expect mixed results on the reform bill’s goals of expanding coverage and reducing costs,” said Kristi Bohn, FSA. “The legislation will significantly reduce the number of Americans who are uninsured. Our study anticipates that the size of the individual market will more than double, an increase driven in part by people who are below 200% of the federal poverty line coming into the market. This group of people are considered to be ‘good risks’ and are generally expected to bring down average costs. But other changes in the composition of the individual market will more than offset these lower costs, and in fact, will drive average costs up.”

The model used in the SOA study found that a significant number of people currently insured through state-sponsored high-risk pools or through the temporary Pre-Existing Condition Insurance Plan (PCIP) high-risk program will move into the individual market. In the case of those states that operate a high-risk pool, the impact of these higher-cost individuals has been spread over a wider pool through approaches that vary by state. Under the PPACA, the impact of these members’ higher costs will be concentrated in the individual market.

The study also predicts that a number of people currently insured under employer-offered plans will move to the individual market, either because employers will stop offering coverage or because the individual perceives more value in the individual market than in their employer-provided plan. The model demonstrates that movement from employer coverage to the individual market will be biased toward higher-cost members. According to the research, even small shifts from the employer-provided market will have a significant effect on costs in the much smaller individual market.

Taken together, the study predicts that shifts of currently insured people from high-risk pools, the employer market, and previously uninsured persons who must pay most or all of the cost of coverage to the individual market, will overwhelm the expected lower costs anticipated by the influx of newly insured persons in the exchanges receiving federal benefit and premium subsidies. As a result, the underlying claims cost of insurance in the individual market will increase by an average of 32% nationally, when compared with what it would have been without the reform law.

In some cases, the model projects that currently low-cost states, such as Ohio and Wisconsin, could see increases of 80%, while other currently high-costs states, such as New York and Massachusetts, may see double-digit decreases. States with the greatest changes in cost, assuming all states expand Medicaid, include:

Top Five State Increases:

  • Ohio (81% increase)
  • Wisconsin (80% increase)
  • Indiana (68% increase)
  • Maryland (67% increase)
  • Idaho (62% increase)

Top Five State Decreases:

  • New York (14% decrease)
  • Massachusetts (13% decrease)
  • Vermont (13% decrease)
  • Rhode Island (7% decrease)
  • New Jersey (1% decrease)

Sources: Society of Actuaries; March 26, 2013; and SOA Report; March 2013.

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