The broad market reforms outlined in the ACA take effect on January 1, 2014. Individuals and families purchasing insurance in the individual market will be guaranteed coverage for pre-existing conditions, and their premiums cannot vary based on their gender or medical history. There will also be subsidies to help consumers afford the cost of coverage, and new state-based health insurance exchanges will help consumers find the policies that best meet their needs.
At the same time, other provisions take effect that will significantly increase the cost of coverage for individuals, families and employers. The cumulative impact of all of these provisions increases the likelihood that some individuals will choose to purchase insurance only after they become sick or injured, further increasing the cost of coverage for everyone else with insurance.
These 2014 provisions will raise costs and cause disruption unless they are addressed:
Beginning in 2014, the ACA imposes a massive new tax on health insurance plans that sell policies to individuals, small businesses and beneficiaries enrolled in Medicare and Medicaid managed care. The Congressional Budget Office (CBO) has said that this tax will be passed along to consumers in the form of higher health insurance premiums.
Older patients typically utilize more, and higher cost health care services than younger patients. One way states can ensure that coverage remains affordable for everyone is to support the use of age rating bands that spread premium costs over a range of age groups. For example, in a state with a 5:1 age band, the ratio limits the amount an older individual will pay to no more than five times what a younger individual pays in premium dollars.
The ACA limits the age band to 3:1 starting on January 1, 2014. Consequently, premiums will spike for young adults – the very people experts agree are needed to help balance out the insurance risk pool. For example, moving from a 5:1 age band to a 3:1 age band will cause premiums to increase significantly for individuals under the age of 30 – potentially outweighing any subsidy benefit that may be available under the ACA.
Younger individuals and families that are subject to rate shock are likely to decide against getting coverage or may drop their existing health care plan. This will further drive up the cost of coverage for everyone else in the insurance pool.
Minimum benefit requirements
The ACA also establishes a federal set of minimum benefit requirements for all health insurance plans. These include:
The ACA requires health plans offered in the “exchange” as well as plans sold in states’ small-group and individual markets to provide coverage for a minimum benefit package—known as the “essential health benefits” package—effective January 2014. The law outlines 10 general categories of benefits that are to be used as a benchmark when determining what qualifies as an “essential health benefits” package. These categories go beyond the benefits covered by many plans purchased by families and small businesses today. Further expansion of the essential health benefits requirement will raise costs by forcing millions to “buy up” and purchase substantially more coverage than they have today.
Minimum actuarial value
The exchanges establish different tiers of coverage based on the “actuarial value” of a health insurance policy. Actuarial value is a summary measure of a health insurance plan’s benefit levels—measuring the relative percentage paid by a health benefits plan and its enrollees for a standard/average population. For example, a plan with an actuarial value of 70% means that the insurance plan would pay 70% of covered health care expenses—while the enrollee would pay 30% out-of-pocket in the form of co-payments, co-insurance, and deductibles. The most affordable tier, known as the “bronze” tier, will require a minimum actuarial value of 60 percent – which likely represents a higher actuarial value that many plans purchased today in the individual market which, in turn, would result in higher premiums for those plans.
New Benefit Mandates
The law also imposes other benefit mandates, some of which have already gone into effect. These include first-dollar coverage for preventive care, no annual limits on coverage, and no lifetime limits on coverage. All of these benefits will of course incur additional costs that will be reflected in the premiums people are charged.
The ACA requires health insurers in the individual and group markets to provide coverage on a “guarantee issue” basis without any pre-existing condition exclusions—which could create an environment where individuals wait until they are sick to obtain coverage absent strong incentives to assure that everyone participates in the marketplace. States that have enacted similar approaches have seen significant premium increases, less competition and a loss of consumer choice. To counterbalance some of the effects of this and other insurance market reforms, the ACA also includes a requirement that all Americans carry basic health insurance. Yet many experts question whether the coverage requirement will be sufficient to encourage younger and healthier people to take up coverage. In fact, the penalty for failing to carry insurance in 2014 will be as low as $95.