Affordable Care Act Beginning to Look Affordable
by Justin Q Taylor
Several recent news items encourage optimism for the success of the sweeping 2010 federal health care reform law, the Affordable Care Act (“Obamacare”), but much of the law’s effects remain to be seen. Many early concerns with the law involved predictions that covering more people would drive up premiums. Thus far, this does not appear to be the case.
Early Success for State Insurance Exchanges
The Washington Post has a summary of promising early results of state insurance exchanges in California and Oregon. These exchanges are set up by the Affordable Care Act, and encourage competition between insurance providers.
In 2009 it was estimated by the Congressional Budget Office that the Silver Plan, which covers 70% of medical costs for most subscribers, would cost over $430 a month by 2016 (which the Washington Post article falsely compares to the 2014 California rates). A California-specific study, released just last month by actuarial firm Milliman (retained by the state of California), predicted an even higher $450 premium for Silver Plan subscribers.
Well, the nembers are finally in. The California exchange, Covered California, has recently announced that it will be able to offer Silver Plan rates averaging $276 a month in 2014, even before the subsidies for which many of the subscribers will be eligible. This comes in much lower than the previous estimates and indicates a victory for the insurance exchange method of driving down costs.
A Forbes article on the same story has a great explanation of how these exchanges work:
“Keep in mind that the entire idea of the exchanges is to require health insurance companies to compete openly with one another by offering identical coverage programs in the three created classes—each offering insurance coverage that actually delivers meaningful protection to customers—and then openly disclosing the price each insurance company will charge for that policy. Thus, shoppers can clearly see which company has the best price on an apples-to-apples basis.”
See Covered California’s comparison of new regional rates vs their current equivalents below:
Results in Oregon have been similarly impressive, with several insurance providers even lowering their proposed rates after seeing their competitor’s offers. With such a huge pool of previously uninsured people searching for plans, companies are becoming very competitive over the opportunity for increased market share.
So what do these results mean for the rest of the country? They indicate that a well-run exchange program can successfully use competition to prevent the immediate premium increases which many predicted. But caution is needed going forward: the sustainability of these premium rates depends on a variety of influences, including success of healthcare cost reduction measures, and convincing the young, healthy uninsured to sign up for plans. These successes will be necessary to balance out the increased burden from additional covered drugs and procedures as well as the mandated coverage of those with preexisting conditions.
Massachusetts Safety-Net Providers Not Experiencing Increased Costs
A new study presented at the American Heart Association’s Quality of Care and Outcomes Research Scientific Sessions 2013 indicates that the 2006 Massachusetts health reform law, which was a model for the national reform law, has not resulted in increased hospital use or accompanying costs. The results were consistent in safety-net hospitals (hospitals with a high percentage of low-income patients) and in Medicare patients.
Because the Affordable Care Act is structured similarly to the Massachusetts law, this news is promising for the national outlook.
The new study may help alleviate concerns brought up by a 2011 Journal of American Medicine study, which found that patients were continuing to seek care through safety-net providers even after they obtained health insurance. The results validated warnings that previously uninsured people might continue to make use of expensive emergency room facilities for non-emergency care even after they obtained health insurance.
What about the supposed 40% excise tax on high end plans? Since Bronze only cover 70%, will the Gold and Platinum plans have this tax? Where does that leave most middle class people who need health insurance? They will not be likely to be eligible for subsidies.
First, the Silver plan is talked about a lot because it is used as a metric of comparison for plan prices. Page five of the Covered California health plans booklet (http://www.coveredca.com/news/PDFs/CC_Health_Plans_Booklet.pdf) lays out the other plans, Bronze through Platinum. Platinum covers 90% of your services and in all of the regions of California (for example) costs less than the amount required to trigger the excise tax. These “metal plans” are for people who are not eligible for insurance through other means, such as their employers.
The excise tax only applies to plans with premiums that exceed $10,200 annually or $27,500 excluding vision and dental. That works out to $850 or $2292 a month. The 40% rate is only applied to the amount that exceeds these numbers, so a $10,500 annual premium will cost you $120 annually or an extra $10 a month from the tax. One goal of the tax is to discourage people from obtaining plans which have very low deductibles and co-pays and therefore encourage overuse of the medical system. An article in the Washington Post (http://www.washingtonpost.com/blogs/wonkblog/wp/2012/07/08/the-most-important-tax-increase-in-obamacare/) has a probable explanation:
“the idea behind the tax isn’t to raise money: It’s to change behavior. The hope is that it will pressure employers and workers to choose less-expensive plans. If it works, additional tax revenue will be generated less by so-called “Cadillac” plans subject to the excise tax than by employers delivering more of their workers’ compensation in the form of taxable wages and less in the form of expensive health-care benefits.”
It should also be noted that the excise tax does not take effect until 2018.