Confusing the Public on the Affordable Care Act

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

In my previous post I explained that general statements on the probable impact of the Affordable Care Act on the pocketbooks of Americans often do not make sense and can be quite misleading.

My point can be illustrated with a recent news release from the Ohio Department of Insurance, “Health Insurance Costs to Increase Significantly Under Affordable Care Act.” The department tates that it “released the information today to help health insurance consumers continue to prepare for the expected price increases.” It offers a one-sided perspective.

In its announcement, the department reports:

The department’s preliminary analysis of the proposed plans for the individual market reveal that insurers expect the cost to cover health care expenses for consumers will significantly increase. Based on a report released by the Society of Actuaries earlier this year, the department estimates this increase is an average of 88 percent. … A total of 14 companies filed proposed rates for 214 different plans to the department. Projected costs from the companies for providing coverage for the required essential health benefits ranged from $282.51 to $577.40 for individual health insurance plans.

Presumably these numbers refer to claims cost and not premiums.

The release is silent on whether the repor! ted average of $420 of this wide range of claims costs are those for a given benefit package or an average over quite different benefit packages. If the former, how could the range of cost claims be so wide? If the latter, the reported average of these numbers would be meaningless. After all, how informative would it be to say that the average cost for a group of cars is $110,422, when that includes Chevrolets, Jeeps, BMWs and Ferraris?

If properly informing consumers had been truly the department’s intention, it should have added at least two additional pieces of information.

First, the news release should have reminded readers explicitly that income-related federal subsidies toward health insurance premiums will be available for individuals with household incomes up to 400 percent of the federal poverty level, along with “cost-sharing subsidies” toward ou-of-pocket costs for families with incomes between 100 and 250 percent of the federal poverty level. For lower-income people, these subsidies will significantly offset premiums driven up by the reported 88 percent increase in costs.

Second, the news release might have included some explanation of why the “cost to cover health care expenses for consumers” in Ohio is expected to rise as a result of the Affordable Care Act.

A clue to the answer can be gained from the study by the Society of Actuaries cited by the department.

That study reports average claims costs per member per month for what it calls the “pre-A.C.A.” and the “post-A.C.A.” state of affairs. The pre-A.C.A. figure represents estimated claims cost per insured person per month in 2014 if the Affordable Care Act did not exist. The post-A.C.A. estimate reflects the counterfactual assumption that the entire act has been fully carried out ! in 2014, ! something that actually will occur only by the latter half of the decade.

Using a highly complex simulation model, the actuaries estimate that if the Affordable Care Act were fully carried out by 2014, the average claims cost per member per month in Ohio’s nongroup risk pools would rise from an estimated pre-A.C.A. level of $223 (Figure S-2, Page 8) to the post-A.C.A. level of $406, an 82 percent increase, assuming no expansion of Medicaid in Ohio. The increase in systemwide total health spending in Ohio brought on by the Affordable Care Act, however, is estimated to be only 3.2 percent.

Aside from the fact that the minimally accepted package of essential benefits under the Affordable Care Act will be more generous and costly than many of the much leaner policies traditionally sold in the nongroup market, that can leave people expsed to high financial risk, a major driver of the projected cost increase â€" one explicitly flagged by the actuaries â€" is a projected change in the risk profile of the insured in Ohio’s nongroup market.

The Society of Actuaries projects that the number of individuals insured in that market will increase from the pre-A.C.A. level of 415,000 to the post-A.C.A. level of one million. Many of these newly insured are projected to be relatively sicker individuals who had been excluded from Ohio’s nongroup market, either because they could not afford the high premiums they were quoted, based as these were on the individual’s health status; or because insurers had refused them coverage outright; or because they were in the state’s high-risk pool.

Just last week Julie Appleby of the Kaiser News Network reporte! d on the tribulations that individuals had routinely experienced in the current, pre-A.C.A. nongroup market.

The proponents of the Affordable Care Act should not deny that with this simulated change in the risk profile of Ohio’s nongroup insurance market â€" which may or may not come about â€" a switch from medically underwritten premiums to community-rated premiums, coupled with a richer benefit package, could significantly raise premiums for healthy individuals with higher incomes who are not entitled to substantial federal subsidies or any at all. The Ohio Insurance Department’s news release certainly drives home that point.

On the other hand, for projected new entrants into Ohio’s nongroup market who are relatively less healthy, the community-rated premiums even before federal subsidies are most likely to be significantly lower than their medically underwrittn pre-A.C.A. premiums â€" if they had been offered coverage at all. A forthright news release would have mentioned that positive outcome as well.

From the “fact sheet” that the Department of Insurance appended to its news release, one gathers that Ohio’s lieutenant governor, Mary Taylor, who also acts as director of the Department of Insurance, opposes the Affordable Care Act and supports its repeal. In the fact sheet, her department notes:

Health insurance today is priced based on individual characteristics. Those with healthier lifestyles are rewarded with more affordable options. Under the A.C.A., all Ohioans will be lumped together for the purposes of pricing thereby eliminating the benefits of healthier choices. This method of rating is commonly known as “community rating. … Because Ohio is ! being for! ced into this type of pricing, health insurance costs are increasing in 2014.

I can understand how community rating violates the theory of justice espoused by libertarians. In fact, I have proposed a way to accommodate their preferred social ethic. The department’s rationale for opposing what it calls “one-size-fits-all pricing,” however, astonishes me.

One can agree that an individual’s choice of an unhealthy lifestyle can reduce her or his health status and increase that person’s use of health care. Community rating gives such people a financial break we would rather not give them.

But many serious and often devastating illnesses afflicting individuals are a result of accidents, or genetic or environmental factors that have little to do with lifestyle choices. The many victims of such illnesses, in Ohio as elsewhere, might interpret the Ohio Insurance Deprtment’s rather crudely put theory of the causation of illness as an insult added to injury.