Is the Affordable Care Act's Impact Over-hyped?

NEW YORK (MainStreet) — Obamacare is coming, and you probably won't feel a thing.

That's the result of a set of studies recently conducted by the RAND Corporation and Kaiser Foundation, two think tanks dedicating considerable resources to asking just how this sweeping piece of legislation will change the American health care marketplace. With the Affordable Care Act's (ACA) state insurance exchanges starting next month, now is the right time to ask the question.

The somewhat surprising answer is that, for most consumers, it won't.

"In general, there won't be a big spike in premiums because of the Affordable Care Act, so there shouldn't be a big rate shock," said Dr. Carter Price, a mathematician with the RAND Corporation. "Some states will see an increase in premiums, some states will see a decrease in premiums... But across the system, premiums won't be higher."

Price's team looked at data from ten different states to model how the law will change the health insurance marketplace, both in its impact on premiums and enrollment. The team's first finding was that the law should largely work as intended, reducing the predicted number of uninsured Americans by more than half over the next two years. As far as prices go, however, the team found that Americans just won't see many changes.

It's an issue of demographics.

"It's going to depend a lot upon the demographics of the population in each different area," Price said, "and particularly it will depend on what the uninsured population looks like. So in some states where you have a large uninsured population, and that uninsured population is relatively healthy, you're likely to see a big increase in the number of people who are enrolled in the non-group market but not a huge response in premiums."

Health insurance premiums are driven by what's known as the "risk pool," the number of healthy people compared to the number of sick ones in an insurance plan. The larger the sick population in pool, the more the insurance company is paying out per-person and the higher premiums get.

Under the Affordable Care Act, the biggest two changes to these risk pools will come from the individual mandate and required coverage regardless of pre-existing conditions. As Price explained, whether or not local premiums change will all depend upon the relative health of the uninsured population. The more new sick people enrolled, the higher prices will get and vice versa.

With some exceptions, the RAND report found that these demographics will generally work in favor of the consumer. The uninsured population is on average a young and healthy one that chooses not to get insurance because it seems unnecessary or expensive. In most parts of the country, therefore, these demographics will mean more healthy members of the risk pool, and therefore more stable (or marginally lower) insurance rates.

"Just to give you an idea the scale of this," Price said, "the people who are gaining insurance tend to be younger, and most health care dollars are spent on people over 65. So you're increasing coverage among the people that don't consume a lot of health care per capita."

Price expects about a 10% increase in the number of people with insurance. But in terms of the change in health care spending, his colleagues and he have estimated that to be about two percent."

The study put out by the Kaiser Foundation agreed with these findings, saying that "while premiums will vary significantly across the country, they are generally lower than expected."

Unfortunately, Price was careful to point out, some local markets can expect their rates to rise.

"In states where the uninsured have different demographic characteristics you'll see a different outcome," he said. Of the ten states that the RAND Corporation team specifically studied, for example, they expect pre-subsidy rates could climb in Minnesota, North Dakota and Ohio based purely on local demographics.

Still, even in these states, the study found that "after accounting for tax credits, average out-of-pocket premium spending in the nongroup market is estimated to decline or remain unchanged in all states considered and in the nation overall."

Of course, all of this only applies if you're buying insurance on your own.

"When we talk about increasing premiums we're talking about the non-group market," Price said. "Currently there are 12 to 17 million people in the non group market. Most people get their insurance from their employer, and they won't see as big an impact."

In fact people within group markets, such as anyone who gets their insurance through an employer or a school or any other form of collective plan, will barely notice any changes at all. Turn off cable TV and you might not know there's an Affordable Care Act to begin with, aside from savings on your medical bills to account for reduced hospital expenses on the uninsured.

This last point could turn into real savings for health care consumers, however, as under the current system hospitals must pass the cost of caring for patients who don't carry insurance on to those who do.

Don't expect your employer to suddenly have a change of heart regarding its current insurance plans, however. According to the RAND study, employers are unlikely to change their current policies regardless of the employer mandate.

One factor that Price says could reliably cause premiums to go up is state rejection of the ACA's expansion of Medicaid. This provision allows states to expand the Medicaid eligibility pool, as well as offering additional federal funds for doing so. It was carved out by the Supreme Court as an unconstitutional mandate, allowing states to choose whether or not they want to embrace the policy.

So far 16 states have announced that they will reject this expansion of the low-income medical assistance program according to the Advisory Board Company.

"If a state does not expand Medicaid, the population between 100% and 138% of the poverty level will now be eligible for subsidies instead of Medicaid," Price said, putting that population into the commercial insurance pools rather than the government program.

This will very likely lead to a rise in premiums, because this portion of the population tends to be in worse health overall. It's also a demographic that will tend to enroll in health care only when sick, regardless of subsidies or mandates.

In this report, Price and his colleagues looked at at Texas, Louisiana and Florida, and the premium changes that resulted from a state's decision to opt out of Medicaid were on average 8% to 10 %.

Still, the takeaway from both reports remains that the insurance markets are remarkably well prepared to handle the influx of new customers coming over the next year. Most people, whether on a group or individual plan, simply won't notice the difference.

--Written for MainStreet by Eric Reed, a freelance journalist who writes frequently on the subjects of career and travel. You can read more of his work at his website www.wanderinglawyer.com.

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