It’s hard to find a federal law that has polarized the American public as much as the Affordable Care Act (ACA), better known as Obamacare. Proponents argue that the bill is doing precisely what it promised to do: holding down the rate of spending on medical services. But many opponents of the law on the political right are fuming over sky-high premiums. Which side is closer to the truth? Figuring that out means going to the most reliable sources we have, not the political partisans intent on spinning the data in their favor. Here's what we found.
A Shakeup in the Market for Individual Plans
While the ACA created new regulations for employer-based health plans, undoubtedly its biggest impact is on policies bought outside the workplace. The law fundamentally reshaped the market for these individual plans, on which more than 33 million Americans rely for their health coverage.
First, the ACA created online exchanges where consumers could, for the first time, shop for comparable plans with relative ease. In addition, the law established a mandate to purchase health insurance, theoretically bringing more healthy young people into the market and putting downward pressure on healthcare costs.
The bill also included a number of provisions aimed at bolstering the quality of individual plans. For example, insurers were required to cover policyholders with pre-existing medical conditions and to provide certain “essential benefits,” such as maternity and mental health coverage. In theory, these components of the ACA could have pushed premiums higher.
In light of these new requirements for insurers, healthcare experts say looking at prices before and after 2014, the year healthcare exchanges were introduced, is a tricky endeavor because the policies are so different. In many cases, the policies that Americans are buying today offer greater benefits—including a cap on out-of-pocket expenses—than those purchased prior to the ACA.
Expectations for the Affordable Care Act (ACA)
With that caveat in mind, The New York Times assessed pricing data and predicted that premiums would rise by 8.4% for the most popular health plans that consumers carried over from 2013. However, the Times also predicted that premiums would rise by only 1% if consumers switched plans and shopped on the exchanges.
When you factor in the subsidies that lower-income earners receive, there’s actually some evidence that personal healthcare outlays may have gone down slightly in 2014. The nonpartisan Kaiser Family Foundation examined premiums for those who switched from earlier plans to ACA-compliant policies and found that 46% paid lower premiums. Conversely, 39% said their premiums were higher.
The Early Effect on Premiums
For 2015, the second year of the online exchanges, the Kaiser Family Foundation found that price increases were fairly small. Nationwide, premiums for exchange-based plans with a medium level of coverage rose by a modest 2%—and that’s without tallying the effect of subsidies that reduce out-of-pocket expense for some individuals and families. (The study examined the second-lowest-cost silver plan in the marketplace; plans are divided into bronze, silver, gold, and platinum levels).
A separate source, the McKinsey Center for the U.S. Health System Reform, revealed a somewhat larger jump from 2014 to 2015. It concluded that gross premiums (those before subsidies) climbed by an average of 6% for the least-expensive plans on the exchange.
While a 6% uptick may sound significant, it was not too drastic when compared to pricing trends before the healthcare law. The Commonwealth Fund, another nonpartisan research organization, studied the three-year period before the passage of the ACA—from 2008 to 2010—and found that premiums on the individual market were rising by 10% or more per year nationwide.
More Recent Effects on Premiums
In 2018 and 2019, the ACA's marketplaces experienced considerable turmoil that resulted in huge swings in premiums. In October 2017, the administration stopped directly reimbursing insurers for cost-sharing reductions. The ACA required marketplace insurers to reduce out-of-pocket costs for people with incomes below 250% of the federal poverty level, so insurers increased their premiums (typically silver marketplace premiums ) to cover the additional cost. There were also concerns about the marketplaces’ stability and long-term viability, and these fears were reflected in the 2018 premiums.
In 2018, the lowest silver marketplace premium offered in each rating region increased sharply by 29.7% on average. Twenty-eight states increased their average lowest silver premium by more than 29%.
In 2019, many insurers realized that they had overreacted, and increases for the lowest silver premiums averaged -0.4% nationwide, and, in many states, premiums decreased. In 2020, continued stability caused premiums to fall across all states by an average of 3.5%. According to the Urban Institue, 31 states had lower premiums in 2020 than in 2019.
COVID-19 and ACA Premiums
The ACA made premium tax credits available to people purchasing health coverage on the marketplaces but only when their incomes fell between 100% and 400% of the federal poverty level. Millions of uninsured people are eligible for subsidized coverage on the ACA marketplaces but do not take advantage of this financial help. This may be that the financial help is not sufficient to make the premium or the deductible affordable. Moreover, a sharp cliff exists at 400% of the poverty level.
The American Rescue Plan Act of 2021 law passed in March 2021 under President Biden expanded marketplace subsidies above 400% of poverty and increased subsidies for those making between 100% and 400% of the poverty level. According to Kaiser Family Foundation, "These additional subsidies will yield substantially lower premium payments for the vast majority of the nearly 15 million uninsured people who are eligible to buy on the marketplace and the nearly 14 million people insured on the individual market."
Most of the 29 million insured and eligible uninsured have lower health insurance premiums as a result of these subsidies, and many could also afford lower deductible plans as long as they take advantage of the new financial assistance.
The Bottom Line
Any law as extensive as the 906-page Affordable Care Act is likely to have provisions worthy of legitimate debate. Nevertheless, its impact on healthcare premiums is becoming clearer as more data become available. While the results vary from one state to the next, the overall numbers seem to suggest that post-ACA premium increases have been rather modest compared to those prior to ACA implementation.