Curmudgeon's Corner

Will "Affordable Care" be Affordable?

Posted by Al Campbell on March 9, 2013

U.S., Political, Healthcare, Economy, Quality of Life

The Affordable Care Act, the ACA of PPACA, is supposed to lower costs for families and individuals while assuring that most will be covered and that the care afforded will be better than that to which we are exposed today.  The bulk of reforms that are part of this Act are slated to become effective in 2014.  That will include the minimum essential benefit “metal” plans known as the Bronze, Silver, Gold and Platinum plans and the access gateways now to be known as “marketplaces”.

Much of the additional funding necessary to support the ACA is to be acquired through various taxes and fees that come into effect in 2014.  Additionally, the maximum difference in premium rates from youngest to oldest ages covered will be limited to a ratio of 1:3.  This means that rates for the oldest age group to be covered cannot exceed three times the rate for the youngest age group to be covered.  This is known as “rate compression” and, from an actuarial perspective, is believed to result in higher rates for younger people who are expected to help pay the costs for older people.  That has been part of the equation in setting premium rates for years, which is why the number of “rate bands” has been five or more for the past decade or longer.  The reduction from that number of bands to a lesser number has to result in higher premium costs for the lower age groups.  Those groups are healthier, which is why there have been quite a few people in those groups who’ve chosen, up until now, to go without health insurance.  Of course part of the ACA is the requirement that all be covered or pay a penalty.

All of this sounds almost too good to be true but, of course, we are not the ‘brainiacs’ that wrote the law, so it is understandable that we might not be capable of comprehending all the goodness that is to flow to us.  Fortunately, the minority staffs of the Senate Committee on Finance and of the Senate Committee on Health, Education, Labor & Pensions along with the majority staff of the House Committee on Energy and Commerce have taken on the responsibility of reporting just how good all this is likely to be.  That report was just issued and is dated March, 2013.  You can choose to poo-poo it since it was written by Republicans but I suspect you do that to your own disadvantage.

So, what did this report have to say?

Increases in the premiums for individual (non-group) coverage are expected to be some 34% to 106% in Wisconsin; some 29% to 56% in Minnesota, and some 61% in Illinois.  The premium subsidies to be available to those with incomes at and below $46,000 will not be sufficient to offset these premium increases for the majority in that group.

Young adults in the small employer group insurance market can expect to see as much as a 176% increase in Milwaukee; a 144% increase in Chicago, and a 134% increase in Phoenix.

How is this possible?  Is there some collusion involved?

Rate compression (3-tier rates) is a significant factor in these expected increases.  The limitation on high deductible plans contributes to the cost explosion.  The reduction on FSA (flexible spending account) wage amounts permitted is a factor.  The various taxes and surcharges to providers and insurers are part of the expectations since they cannot provide services at a loss and expect to stay in business.  There is a new 3.5% fee on every plan purchased through one of the new “exchanges” and that is estimated to boost costs by $180 for an individual policy and $500 for a family policy.  The fact that everyone is guaranteed coverage will lead to young people opting to stay out of the health plan system unless and until they have a diagnosis of something severe; that is especially true in light of what the premium increases are going to be.  They will be ahead by a significant amount if they simply pay whatever penalties might be assessed.

How could this be possible?

Unfortunately the ACA appears to be a poorly crafted piece of legislation.  Unfortunately there are so many moving parts as to make this Act almost impossible to craft properly especially by people who did not, and still do not, understand the marketplace they thought they were reforming.  Unfortunately there are always “unintended consequences” in everything, sometimes even in a one page piece let alone in a two-thousand plus page document hastily crafted and blindly passed “so we can see what is in it”.

There is so much about this Act that seems contrary to established norms in this marketplace that one must consider whether or not this was ever intended to reform health care delivery in our country, or if, instead, it was crafted as a Trojan horse to drive us to a one-size-fits-all single payer plan of health care.

It is increasingly difficult not to place a big bet on the Trojan horse to win.