It’s hard to find a federal law that’s polarized the American public as much as the Affordable Care Act (ACA), better known as Obamacare. Well over a year after its implementation, the debate remains as heated as ever.
What’s baffling is that talking heads on either side of the political aisle seem to have not only divergent opinions, but a completely different set of facts. That’s particularly true regarding the ACA’s impact on healthcare costs. 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. That’s precisely what we set out to do here.
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 19 million Americans rely for health coverage.
First, it created online exchanges where consumers could, for the first time, shop 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 costs.
The bill also included a number of provisions aimed at bolstering the quality of individual plans. Insurers are required, for example, to cover policyholders with pre-existing medical conditions (read How to Buy a Health Plan With a Chronic Condition for more on this subject) and to provide certain “essential benefits,” such as maternity and mental health coverage. In theory, these components of the ACA would work in the opposite direction, pushing 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. 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.
With that caveat in mind, The New York Times assessed pricing data and found that premiums went up 8.4% for the most popular health plans that consumers carried over from 2013. However, premiums rose only 1% when consumers shopped for cheaper plans 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 Henry J. 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 Effect on Prices Since the Rollout
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, which bring down the 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 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 actually looks pretty attractive in comparison to pricing trends before the healthcare law. The Commonwealth Fund, another nonpartisan research organization, studied the three-year period prior to 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.
It should be noted that the impact of the ACA varies tremendously from one state to the next. To be sure, some markets have experienced higher-than-average jumps in the cost of coverage. In certain cases, pundits have grabbed hold of these outliers to rally opposition against the law. But when you look at the broader, nationwide data, price increases to date appear modest by historical standards.
Whether this trend will continue is impossible to tell. The Kaiser Family Foundation warns that several factors could cause premiums to increase at a slightly steeper pace in 2016. For one, the federal government is phasing out its program to compensate insurers that take on more sickly policyholders – from a maximum of $10 billion in 2014 to $4 billion in 2016. And with better information about their risk pool, carriers could decide to increase their prices.
But preliminary data suggest that a massive increase nationwide is unlikely. Kaiser has already crunched the numbers for 11 major cities and found that the average premium increase for 2016 is 4.4%. Certainly there’s a margin of error when you’re looking at a relatively small sample size. At the very least, though, this early assessment helps alleviate fears of a worst-case scenario.
The Bottom Line
Any law as extensive as the 906-page Affordable Care Act is likely to have provisions that are 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 actually been rather modest compared to those in previous years.