Perhaps the biggest irony of the Patient Protection and Affordable Care Act is that if you’re young and healthy, you’ll likely to end up paying higher premiums for individual health insurance than someone who is old and frail or with high-cost medical conditions.
The health care reform law restricts insurers from charging older, sicker policyholders more than three times what they charge younger, healthier members under a policy known as “community rating.”
The law also prohibits insurers from rejecting very sick individuals or those with pre-existing conditions that are more costly to treat. But the higher costs for treating those patients will be spread among younger, healthier Ohioans obtaining coverage on their own or through government-run health exchanges expected to go on-line next year, experts say.
A report prepared for the Ohio Department of Insurance by Seattle-based Milliman Inc. found that a healthy young male in Ohio’s individual health insurance market paying about $200 a month in premiums in 2010 could see his health insurance costs increase from 90-130 percent when the health exchanges begin signing up new enrollees in October.
By contrast, someone age 60 or older in the individual health insurance market could see their premiums fall by as much as 40 percent as a result of the community rating restrictions.
Melissa Thomasson, a Miami University professor who teaches classes on the economic impact of the Affordable Care Act, said the community rating was necessary to ensure that the sick and uninsured could get coverage, which was one of the reform law’s main goals.
“Young healthy people pay the lowest health coverage rates now because they’re less likely to suffer from disease,” Thomasson said. “On the other hand, many sick people are priced out of the market, if it’s available at all. The only way to make insurance coverage available for sick people is essentially to use healthy people to subsidize it.”
Still, forcing young people to pay more to help cover the cost of caring for the elderly and chronically ill could have the unintended consequence of driving health care costs up for everybody. Some individuals and small businesses will drop health insurance coverage due to significant premium increases, experts predict, and others will simply decide to remain uninsured due to financial constraints.
That would pose a problem for the health exchanges, which would be left with a disproportionate number of older, more costly enrollees and too few healthy individuals to help absorb those costs.
“Lets say no young people participated. In that case, the community rating would have to go up, and we’d be back to square one because then we’d have a bunch of sick people and older people in those exchanges at rates they really can’t afford,’’ she said.
To keep that from happening, the ACA will provide tax credit subsidies that help cover premium costs for policyholders in the health exchanges.
Financial incentives decline as income increases
The reform law provides tax credits to help people with annual incomes between 100 percent and 400 percent of the federal poverty level, or from $11,170 to $44,680 for an individual.
But while the poorest will have a strong financial incentive to join the exchanges, those incentives decline as household income increases. And it’s still unclear how the so-called take-up rate, or the percentage of the population that signs up for coverage under the ACA, will affect the exchanges.
“Could it, in fact, limit the effectiveness of the exchanges? In theory, it could,’’ Thomasson said, referring to low participation by young, healthy residents. “In practice, the number of uncovered young people is probably low enough that it’s not going to make a huge difference.’’
Amy Rohling McGee, president of the Health Policy Institute of Ohio, said the take-up rate will be impacted by the high cost of premiums and the lax enforcement written into the health care reform law.
The law requires those who don’t have insurance to purchase health insurance or pay a fine under the so-called individual mandate. The annual penalty will be either a percentage of the person’s taxable income or a flat dollar amount, whichever is greatest.
The dollar fines range from $95 in 2014; to $325 in 2015; and $695 in 2016; McGee said that even the higher amount would be a fraction of the cost of individual coverage for many people.
In addition, there is a security blanket written into the law: most people can’t be denied coverage under the ACA, and a mostly healthy person could simply wait until they got sick to sign up for insurance.
“Why would they pay premiums now that they can’t afford? ” McGee asked, referring to young adults likely to be hit hardest by the rate hikes. “In terms of enforcement, what’s in place now is not going to prevent that, so we may not get enough of those younger people in the health exchanges.”
Rate hikes already starting
Any premium increases under the ACA will come on top of eye-opening rate hikes already requested by many of the top insurers in the individual health insurance market.
At the end of 2010, 12 companies covered at least 1,000 lives in the individual health care market in Ohio, according to the Milliman report.
Of those companies, Medical Mutual Ohio, which controlled about 28 percent of the individual market in 2010, and Aetna Helath Inc., one of the biggest insurers in the Dayton area, both asked for double-digit rate increases on their individual plans last year, according to information reported on the HealthCare.gov website.
Medical Mutual got a rate increase of 13.60 percent on individual plans last year, and Aetna has been approved for a 16.50 percent average rate increase on individual plans that will take effect April 1.
Critics say rising premiums are proof the the ACA was ill-conceived and flawed legislation.
“Anytime you have anything mandated in an insurance product that increases the cost of all the insurances,” said Greg Lawson, a policy analyst for the right-leaning Buckeye Institute for Public Policy Solutions in Columbus. “Obviously, the community rating issue is a little bit different than a direct mandate in terms of coverage, but it’s still essentially a mandate, nonetheless, and it’s going to increase costs.”
He said traditional means for providing affordable care, such as health savings accounts and low-premium, high-deductible health plans, are being usurped by the health care law with little benefit in return.
“Those are the kinds of plans that are being slowly eradicated to some extent by the passage of the Affordable Care Act,” Lawson said. “So you don’t have nearly as much choice as you really could have, and should have, if you were really doing things under the free-market system. I think that’s really bad for young people and everybody else when you see premiums going up.”
Benefits outweigh costs
The benefits of the ACA far outweigh its drawbacks, most advocates say, noting that most of those critical of health care reform have yet to offer a better solution.
“This will greatly improve the health care system of America by slowing the overall growth of health care expenses in this country, which are driven by an increasing share of people being outside of the system and not having access to preventative care and treatment,” said Wendy Patton, project director for Policy Matters Ohio, a Cleveland-based think-tank. “When people have no insurance, they seek health care as a last resort in the emergency room, and this drives costs because the American emergency room is a very expensive venue for health care.”
Patton cited a recent study from the the Health Policy Institute of Ohio projecting the number of uninsured Ohioans with and without full implementation of the ACA from 2014 to 2022.
With full implementation - including the expansion of Medicaid, which has yet to be decided in Ohio - the number of uninsured Ohioans would fall by 42 percent to 635,000 over the period, shielding the insured and uninsured alike from the astronomical costs of treating those without insurance.
Full implementation of the ACA would also add $1.4 billion to state coffers and create 31,000 jobs.
“Health care jobs occur in every community and every county in the state,” Patton said. “So this is broad, evenly spread economic development. It’s another solution to making our economy work better while improving the lives of Ohioans.”