The most recent Cavalcade of Risk is live now at My Personal Finance Journey – be sure to check it out. An article from Super Saver at My Wealth Builder caught my attention, and I thought it would be worth addressing, since I’m sure a lot of people have the same question: if the ACA was supposed to lower healthcare costs (including health insurance premiums), why are everyone’s health insurance premiums still going up so much?
Super Saver included a chart in his post, showing the percentage increase in his health insurance premiums from 2009 to 2013. He notes that prior to 2008 his family’s health insurance was covered by his employer; he started purchasing his own health insurance once he retired. He’s likely aware that health insurance premiums have been rising significantly since long before he started buying individual health insurance, but it sounds like his employer was covering most of his health insurance prior to 2008, which means he might have been unaware of the premium increases in the decade before he retired. (This Kaiser Family Foundation document has some good charts – see page 19 for employer group premiums from 1999 to 2011 and page 24 for individual premiums all the way back to 1996). I include these details because we sometimes hear from clients or other bloggers that the ACA itself is responsible for the health insurance premium increases we’ve seen since the law was passed in 2010.
In Colorado, the passage of the ACA coincided with several state-level reforms (like the law requiring maternity coverage on all new and renewing individual health insurance policies) that improved health insurance quality but were widely believed to drive up premiums as well. And with each new annual rate increase since 2010, we hear from people who are convinced that the entire increase is attributable to the ACA and/or Colorado’s reforms like the maternity mandate. We wrote a couple years ago about the Colorado Division of Insurance bulletin that laid out the reasons for rate increases in 2010 – almost all of them were the same factors that had been driving premiums for the previous decade; only 5% of the total premiums could be attributed to changes created by the ACA.
The KFF brief (on page 25) details the main reasons that healthcare spending (which drives health insurance premiums) has been outpacing the overall economy for many years. An ageing population, every-advancing healthcare technology, chronic illnesses and obesity, and several factors that are driving overutilization of healthcare (including more comprehensive health insurance and significantly lower overall percentage out-of-pocket costs relative to 40 years ago). Most of these issues predate the ACA.
So we know that the ACA isn’t causing health insurance premiums to increase, but why is it not delivering on its promise to lower them? That is a bit more complicated. Life is not a controlled experiment. We cannot go back and undo the ACA and start over in 2010 without any reform law, to see exactly what our health insurance premiums would look like now. But I think that we have to look at the timeline of implementation for the ACA and consider the realistic time frame in which we can expect to see cost controls having an effect. The ACA rolled out several consumer-protection provisions in 2010 and 2011, likely in an effort to win over popular support for the law in its early days. Things like guaranteed-issue coverage for children in the individual market (which led to a whole host of issues), no lifetime coverage limits (and restricted annual limits), allowing young adults to remain on their parents’ coverage until the age of 26, and the 80% – 85% MLR rule.
Factors that are more likely to reduce costs (like the individual mandate, for example, and the IPAB) generally won’t get implemented until 2013 or later. Ramped-up preventive care has already become a cornerstone of healthcare reform, but that’s a change that is likely to result in increased short-term costs, in trade for long-term savings. We’re still very much in the short-term time frame right now.
The predicted long-term cost savings from the ACA are definitely not a sure thing. But we need to keep in mind that many of the substantial changes included in the law have not yet taken effect. And many of the changes that have been implemented are those that tend to increase short-term costs and/or utilization of care. I’m just as curious as anyone else to see what health insurance premiums look like five years from now, after the individual mandate has been in place for a few years and most of the other provisions of the ACA have been implemented. I would say that for now, it’s just too soon to tell whether the cost-saving measures in the healthcare reform law are effective or not.