Its official name is the “Patient Protection and Affordable Care Act.” Some people refer to it as “ACA” and others call it “Obamacare.” But many Americans refer to it with words we can’t print.
ACA’s proponents sold the public on the idea that all Americans could buy insurance that covers pre-existing conditions and a host of other services. They told the public that they could buy coverage as easily as they purchase airline tickets online. They told the public that they could buy coverage at a reasonable price. But we all know what happened once the switch was flipped on Oct. 1, the first day that people could shop for coverage:
» The health care exchange websites went down on the first day because of glitches and an inability to handle the number of people who went online. An army of experts was sent in to fix the problem, but it was estimated that it would take until the end of November to get things up and running the way in which they were intended.
» Only six people were able to sign up for coverage on the first day that the online health care exchanges went live.
» About 100,000 people were able to sign up for coverage in the first month. This was only one fifth of the number of sign-ups originally estimated by the Obama administration.
» Many people gave up trying to sign up at all. A poll said only 17 percent of Americans who are eligible for coverage even bothered to check out the website.
» More than 4 million policyholders were told that their current plans would be canceled because they didn’t meet the standards for coverage (known as “essential health benefits”) mandated by ACA. This was despite President Obama famously telling the nation, “If you like your health plan, you can keep it.” Public outrage over this development led to Obama announcing that insurance companies that wished to keep these plans in force would be permitted to do so for one year.
» Political finger-pointing over the whole mess dominated news headlines and talk shows for weeks.
» President Obama apologized to the American people – not once, not twice, but three times – over the botched health care rollout.
» In the middle of this broken transition, health insurance advisors are stuck between a nonfunctioning insurance exchange and anxious clients with one eye on the news and the other on their soon-to-expire policies.
But all of that is nothing compared to this question: “Is the Affordable Care Act really affordable?”
What is affordable to one person may be out of reach to another. When ACA was conceived, the idea was that enrolling large numbers of healthy young adults into the risk pool would help lower premium costs for all. Enrollees whose income fell below specified levels would be eligible for federal subsidies to help purchase insurance. A 3.8 percent net investment income tax would be applied to high-income individuals to help pay for the subsidies.
The ability of those with pre-existing conditions to obtain insurance – and the mandate that insurers cannot drop high-risk individuals from coverage – has been an attractive feature of ACA to many Americans. But it has become the main reason why premiums are going up. In addition, insurance plans must cover a wide array of services under the “essential health benefits” mandate – whether the insured actually needs those services or not. So, for example, a 60-year-old childless man must be required to pay for a policy that covers maternity care and pediatric dentistry, even though he has no need for that coverage. The elimination of lifetime and annual dollar limits is another ACA requirement leading to premium sticker shock.
In California, the actuarial firm Milliman reported that the “guaranteed coverage provision” is the greatest factor leading to an estimated 14 percent jump in premiums under ACA. Regence BlueShield of Washington estimated that guaranteed coverage is adding 8 percent to the cost of next year’s premiums.
The decision to permit insurers to continue to offer non-ACA-compliant individual policies for another year throws yet another question into the mix. Will keeping those individual policyholders from entering the exchange further muddy the waters by not forcing more healthy adults to jump into the risk pool?
“Changing the rules after health plans have already met the requirements of the law could destabilize the market and result in higher premiums for consumers,” Karen Ignagni, president of America’s Health Insurance Plans, said in a written statement.
“Premiums have already been set for next year based on an assumption of when consumers will be transitioning to the new marketplace,” Ignagni said. “If now fewer younger and healthier people choose to purchase coverage in the exchange, premiums will increase and there will be fewer choices for consumers.”
“Who is going to stay in the old policies?” said John Aloysius Cogan Jr., former executive counsel for the Rhode Island Office of the Health Insurance Commissioner. “The healthy people with the cheap policies.”
But whether the cost of health insurance is going up or down under ACA depends upon several factors, particularly where you live, your age, your family size, your income level and the level of coverage you select (platinum, gold, silver or bronze).
Where You Live
The Heritage Foundation did a before-and-after comparison of average monthly premiums in the individual market versus the ACA exchanges, and it found wide discrepancies by state. Average premiums came down under ACA in only five states: Colorado, New Jersey, New York, Ohio and Rhode Island. Average premium increases, however, ranged from a 171.4 percent rate hike for an adult age 27 in Arkansas to a 0.8 percent increase for an adult age 27 in New Hampshire and a family of four in Nevada.
In analyzing the numbers, the Heritage Foundation said that states with younger populations are seeing larger premium increases, as younger and healthier people are being required to shell out more in order to keep costs down for older and sicker consumers. The number of insurers offering coverage on the exchanges is another factor in premium rates, with states in which there is little competition among insurers seeing higher premiums.
If you’re an adult under 26, you may be able to remain on your parent’s health plan. But many young adults are faced with forking over some serious bucks to obtain coverage. Once again, it’s a matter of insurers charging younger consumers higher premiums to offset the cost of covering older and sicker folks. In Arizona, the average monthly premium for a 27-year-old is expected to rise to $261.87 a month, up from $102. Other states where 27-year-olds will be on the hook for the highest premiums include Georgia (where monthly premiums are going up by $165), Illinois ($133), Michigan ($138) and Vermont ($216).
Some young, healthy people will earn too much ($46,000 annually for a single adult) to qualify for subsidies and will face higher net premiums than they would have before Obamacare. Others are figuring that it might make more financial sense for them to go without coverage and face paying a 1 percent penalty.
Adults age 50 and above are facing rate hikes as well, even though a requirement of ACA is that insurers must charge older Americans no more than three times what they charge healthy younger adults. According to the Heritage Foundation’s figures, monthly rate hikes for an adult age 50 under the exchange range from a high of 96 percent ($206) in Texas to a low of 3.6 percent ($12) in Maine.
Your Family Size
A hypothetical family of four who shops for coverage on the exchange will be looking at a monthly premium increase of anywhere from 31.6 percent (from $634 per month to $835 per month) in North Dakota to 0.8 percent (from $620 to $625 per month) in Nevada, according to the Heritage Foundation. Again, competition among insurers in the marketplace and the cost of providing the mandated essential health benefits are the big factors leading to these premium hikes.
Your Income Level
Here is where subsidies come into play.
If your household income is between 100 percent and 400 percent of the federal poverty level , you are eligible for a tax credit of anywhere between 2 percent and 9.5 percent of that income as a subsidy for purchasing a silver plan (covers 70 percent of expenses) on the exchange.
The Kaiser Family Foundation estimates that more than 17 million Americans will be eligible for subsidies.
Anyone earning up to 400 percent of the poverty line, which is up to $45,960 for an individual and $94,200 for a family of four, will be eligible for a subsidy.
The lower your income, the larger the subsidy. For instance, those making $17,235 a year will pay no more than 4 percent of income, or $57 a month. Those with incomes between $34,470 and $45,960 will pay a maximum of 9.5 percent of income, or $364 a month. The federal government will cover the rest.
Anyone earning more than $45,960 would be responsible for the entire tab on the health plan of their choice.
In addition to premium subsidies, those making less than 250 percent of the poverty line, or $28,725 for a single person and $58,875 for a family of four, are eligible for extra subsidies to defray out-of-pocket costs, such as deductibles and copayments.
In addition, The New York Times reported recently that between 5 million and 7 million people will qualify for subsidies that will exceed the cost of the cheapest plans for individuals and families on the exchanges. This makes coverage free for them. Neither the Obama administration nor the insurance companies, however, are promoting the plans vigorously. They believe that many consumers would be better off paying a bit more for a policy that would cover more of the out-of-pocket costs for a doctor’s visit or hospital stay.
The Level of Coverage Selected
Under the ACA, insurers are required to offer plans that fit one of four levels. This requirement will apply regardless of whether a plan is offered through an exchange (and premiums must be the same for plans inside and outside the exchange). Insurers don’t have to offer plans in all of those levels, but within the health insurance exchanges, all insurers must offer at least one silver and one gold plan except for dental-only plans.
The four levels of coverage indicate the percentage of health costs that a health plan would pay for an average person. An insurer that offers coverage at any of these levels is required to offer the same level of coverage in a plan designed specifically for individuals under age 21.
 Platinum plans pay 90 percent of covered benefits with an average individual paying the remaining 10 percent out-of-pocket. These plans have the highest premiums.
 Gold plans have 80 percent of health care costs covered for an average person, with enrollees paying an average of 20 percent of the costs.
 Silver plans cover 70 percent of all health care costs for an average person, with enrollees paying the remaining 30 percent of costs.
 Bronze plans cover 60 percent of all health care costs for an average person, with enrollees responsible for paying 40 percent of the costs. These plans have the lowest premiums.
Where Will Premiums Go?
So, will premiums under ACA continue to go up? Or will they level off or even come down once insurers get a clear idea of how many people will sign up for coverage?
Right now, no one seems to have a clear answer for that. The main answer to that will depend on how many young and healthy adults eventually enroll in coverage.
David Axene, a fellow of the Society of Actuaries, told Kaiser Health News that the impact of guaranteed coverage on the health care law is being factored into premium rates now, based on the projections of the ratio of sick to healthy customers. “Once it’s built in, unless they were wrong, it won’t be repeated.”
Brady Cass, president of Asuris Northwest Health, told Kaiser Health News that if actuaries underestimated, premiums might rise more in the future. If not, some consumers might see a rebate, as required by law.
“Did we overshoot the runway or come up short?” he said. “Only way to get there is to get to the end of the runway and look back.”