Actuaries: ObamaCare Will Hike Claims Cost 32 Percent (But Not In Mass.)

Source: The Society of Actuaries' report, "Cost of the Future Newly Insured under the Affordable Care Act." (Posted with the society's permission.)

Source: The Society of Actuaries’ report, “Cost of the Future Newly Insured under the Affordable Care Act.” (Posted with the society’s permission.)

The Associated Press, delving courageously into actuarial data, reports here:

Insurance companies will have to pay out an average of 32 percent more for medical claims on individual health policies under President Barack Obama’s overhaul, the nation’s leading group of financial risk analysts has estimated.

That’s likely to increase premiums for at least some Americans buying individual plans. The report by the Society of Actuaries could turn into a big headache for the Obama administration at a time when many parts of the country remain skeptical about the Affordable Care Act.

…Medical claims costs are the main driver of health insurance premiums. A study by the Society of Actuaries estimates the new federal health care law will raise claims costs nationally by an average of 32 percent per person in the individual health insurance market by 2017. That’s partly due to sicker people joining the pool. The study finds wide disparities among states. The estimates assume every state will expand its Medicaid program.

Naturally, my curiosity turned provincially to Massachusetts. The full Society of Actuaries report is here, including this gorgeous infographic breaking down the data by state. I’m happy to report that New England states are looking good: Vermont and Massachusetts can expect claims costs on individual policies to decrease by over 12 percent and Rhode Island by more than 6 percent. New York can expect a whopping drop of nearly 14 percent. Compare that to poor Wisconsin and Ohio, expecting an increase of over 80 percent.

The AP piece also features some refutations from the Obama administration, including:

The administration questions the design of the study, saying it focused only on one piece of the puzzle and ignored cost relief strategies in the law such as tax credits to help people afford premiums and special payments to insurers who attract an outsize share of the sick. The study also doesn’t take into account the potential price-cutting effect of competition in new state insurance markets that will go live on Oct. 1, administration officials said.

Readers, thoughts? Some helpful clarification from Kaiser Health News here :

Q: I get insurance at work. Were they talking about my insurance claim costs?

A: No. This report was just about people who buy on the individual insurance market, currently under 10 percent of the country, though that’s expected to go up as the law kicks in. The vast majority of Americans get insurance through work or through government programs (Medicare, Medicaid, the military).

Q: Does the study predict health insurance premiums will go up 32 percent by 2017?

No. First, it’s only forecasting the individual insurance market. That’s where millions of Americans newly covered under the ACA are expected to find policies. The report says nothing about costs for employer-based health insurance.

Equally important, the 32 percent forecast is for medical expenses paid by insurers, not what insurers will charge in premiums, and not what consumers will pay.

(Hat-tip to Tom Anthony)

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  • Virginia

    I thought that the MA Division of Insurance could deny premium increase requests from insurers, even for out of state corporations like Unitedhealthcare. Many other states do not have this option. Why? Another example of state pushback against the ACA that also bludgeons the citizenry? Or is it simply that in some states markets reign and for-profit insurance companies are king?

    • Dennis Byron

      Virginia

      The division of insurance (DOI) in Massachusetts has say over the merged market rates (affects about 10% of Massachusetts residents) and Romneycare policies (another 2%-3% of state residents, Medigap policies (but nothing to do with the four parts of Medicare) and possibly Medicaid policies (there are not a lot). And it has some de facto effect on state employee and retiree insurance.

      Most people (60%-80%) are on self insured policies or on Medicare or straight Medicaid and are not affected by the DOI (except if you are one of the 20% of Medicare beneficiaries who buys a Medigap policy).

      The best of my knowledge AARP does not sell anything in the state except Medicare and Medigap policies so the only effect that DOI could have on them is on their Medigap policies.

  • Bob Carey

    When you shift the health insurance market from one in which only the healthy are allowed to purchase coverage, to one in which everyone can buy coverage; insurers are no longer allowed to decline coverage to folks with a pre-existing conditions; and insurers are no longer allowed to charge sicker customers more, guess what? The price will increase. This has nothing to do with cross-border competition, and everything to do with a four letter word…MATH.

    Of course premiums in Massachusetts’ individual market are not projected to increase. We already have a guarantee issue, guarantee renewal market, and we already place limits on deductibles and require all policies to have an out-of-pocket maximum.
    In almost every other state’s individual market, that’s not the case. Try buying individual market policy in Delaware, or North Carolina, or Alabama, or Nevada if you’re sick, or if you’re parents have a history of heart disease. Ain’t happenin’. In those states, the shift to guarantee issue/guarantee renewal will have a tremendous effect on premiums.
    Add in the fact that the ACA limits deductibles and limits out of pocket maximums, and you have all the ingredients necessary for massive price increases.

  • Angry Bear

    Sounds like Joe Trippie wrote that last incoherent, non-specific highly “spun” paragraph!!

  • Reasonable?

    Is this predicted increase the rationale for the ACA 63 dollar per employee fee?

    There is a mechanism to drive down costs if the initial recipe does not work….allowing competition of insurers across state lines….

    I’m pretty sure that will happen in the next 5 years or so.

  • http://twitter.com/josharchambault Josh Archambault

    Carey,
    AP story says “And some states — including New York and Massachusetts — will see double-digit declines in costs for claims in the individual market.” (bold added)

    Nice if you are in the individual marketplace, but not what state officials are predicting for the small business marketplace, which is much larger in Mass. They have predicting “extreme premium increases.” A link to the letter to CMS on this issue can be found here: http://www.forbes.com/sites/aroy/2013/03/14/aca-bites-small-business-in-massachusetts/

    • careyg

      Thanks, Josh — have tinkered with the text to clarify — just doh’t see a way to put “individual market” into a headline, though…

    • Dennis Byron

      Josh and Carey

      Two possibilities:

      A. Are they talking about the merged market?

      These statistics do not apply to Massachusetts at all relative to new policies irregardless (sp? is it even a word?) of the fact that the AP could draw a nice Powerpoint off of someone’s Excel spreadsheet. Somebody somewhere is crunching meaningless numbers and trying to claim some applicability to Massachusetts.

      There is NO market for new healthcare insurance in Massachusetts based on the actuarial issue of being an individual. Individuals and small business buy at the “merged market” rates with some minor adjustments off the base rate — as either Josh or Brian Rosman or both have blogged about recently — for size of group, geography, and age (and maybe occupation?). I do not believe that one of those factors can be that you are a “group of one” but even if I’m wrong, it can only move a premium up or down 5% from the base. The only major factor is age and it can double your premium

      B. Are they talking about the grand-fathered individual market?

      Part of Chapter 58 said you could keep your old overpriced crappy individual insurance if you wanted to but that your insurer could not sell that policy to anyone new. As of 2009, there were only 3500 individually priced and purchased policies remaining outstanding of the 26,000 individually priced and purchased policies in effect before the merged market took effect in 2006/2007 (down from about 50,000 policies around 2000). My guess is that that number is down to less than 1000 policies by now (it would be nice if the Deval Patrick administration provided the transparent government it promised so we could know). If that’s what the AP is talking about… come on… that’s a waste of a Powerpoint