The Reform Law’s Effect on Premiums

As we have pointed out a few times, the federal health reform law passed during the last Administration was sold with promises that couldn’t be kept and weren’t.  One of those was that health insurance premiums would decline.  This while the law was heaping on even more mandated benefits.  A new brief from the Heritage Foundation points out how much individual health insurance premiums have risen since passage.   (Heritage Report)   The big picture conclusion of the report is that from 2013 to 2017 individual premiums doubled.  There were many provisions in the ACA which impacted individual health insurance premiums.  One set revolved around taxes and fees used to help subsidize coverage.  Those taxes and fees alone raised premiums about 4%.  A second factor was increases in mandated benefits and required minimum “actuarial value” of policies.  Not allowing copays on preventive services alone probably raised premiums by 1% to 2%.  Depending on a state’s pre-existing mandated benefits, the other benefit requirements of the ACA likely caused a 5% to 10% increase in cost.  The requirement of a minimum actuarial value, which many pre-ACA individual policies did not meet, added an estimated 8% or so to premiums.  And so on and so on.

In addition to various benefit design requirements, the ACA also had a number of provisions that shifted premiums from one group to another, for example from women to men and from older persons to younger ones.  These provisions create a selection effect; those who got premiums shifted to them were less likely to get coverage and those who got coverage were likely to incur higher spending, meaning higher premiums.  I think these selection effects account for a lot of the premium increases, since it wasn’t hard for people to evade the now extinct individual mandate.  One thing to keep in mind if you read the report is that the Heritage Foundation has a conservative orientation, and just as with other groups across the political spectrum, you have to assume that their “research” has at least partly an advocacy function and may be flavored by their ideological predilections.  On the other hand, it is indisputable that individual health insurance premiums rose substantially and the ACA is responsible for that, contrary to the promises made, which likely were known to be false when made.  Fixing this mess now would best be done by starting over and recognizing that most people don’t need health insurance; they need a backstop for some unusually expensive acute medical need.  There are better ways than insurance to meet that need.