Want to fully understand how the Affordable Care Act will play out? Good luck – you might need a degree in complexity theory, or a crystal ball. The truth is it may be years before anyone can come to any reasonable conclusions.
Still, this fall we’ll get some early indications, distracting noise or both. The linchpin of the massive health-reform program is how the state health insurance exchanges function. They’re supposed to be set up by October 1 and operational by January 1, though many states are recalcitrant or running behind. Several, from Alaska to Alabama, will require federal intervention.
With each state program featuring different insurers and benefit levels, it’s difficult to compare the plans. The only solid mandate is that everyone has to be accepted and no one can be discriminated against due to pre-existing conditions.
State plans also must cover a list of “essential benefits,” such as doctor’s visits and ER visits; hospitalization; maternity and newborn care; mental health and substance abuse services; lab services; prescription drugs; chronic disease management; and preventive services.
But just how all of these services will be packaged and priced is another question altogether. Buyers will have a choice of tiered plans, from basic “bronze” to your high-end multi-service “platinum.” The premiums, of course, will vary for those plans, and will also be subject to reductions depending on subsidies for lower-income purchasers.
Here are five key questions when it comes to the pricing of Obamacare:
1. How much competition will there be? The largest states will see robust competition with a number of insurers vying for market share. Smaller states, such as Vermont, will see less competition – only two companies are in that market right now. A larger question is whether providers will be competitive. Hospital groups have been consolidating across the country. Does this mean insurers will have to raise their premiums in response to the hospital’s increased pricing power? It’s too soon to tell, but it’s a trend to watch.
2. Will premiums be affordable? Few economists can answer this question. Although the ACA has set no guidelines on premiums, the theory behind the law is that a broad pool of policyholders and market competition will keep prices down. Early indications are mixed. Premium rates in California are averaging $331 per month right now, according to the Urban Institute; but in states like Indiana, Florida and Georgia, premiums are higher than the $359 average employee family premium for 2012 (as calculated by the Kaiser Family Foundation). “Premiums are coming in lower than expected,” noted Linda Blumberg, an economist with the Urban Institute, speaking at a webinar sponsored by the Robert Wood Johnson Foundation on August 13. “We can expect competition to increase over the next two to three years.”
3. How will out-of-pocket limits impact policyholders? Federal officials quietly gave insurers a break until 2015 on how much patients can spend on health care on their own. The limits were originally set at $6,350 per individual and $12,700 per family. Insurers can set their own limits or avoid them. For policy buyers, that’s a dangerous wild card, particularly for those who have serious medical conditions or pending surgeries. Will the lower-priced policies come with bargain-rate premiums, placing the risk of excessive out-of-pocket expenses squarely on the policy holder?
4. How will subsidies shape net premiums? The ACA was to provide tax subsidies to lower-income buyers as part of its affordability promise. A recent study by the Kaiser Family Foundation found that about 48 percent of those purchasing plans will be eligible for a subsidy. The foundation estimates that break would amount to $5,548 per family, for a premium savings of 66 percent. So “sticker” prices reported in recent months don’t reflect what people will actually pay for the policies – nor do they account for the number of people who will qualify for Medicaid.
5. How will states vet the plans? Since the states are charged with setting up the exchanges (many have opposed doing so, for political reasons), all premium rates and plans are subject to review by state insurance regulators. These officials also have the power to reject rates if they’re too high. Yet how much sway these watchdogs have will vary from state to state, with some taking a passive role.
Despite all the news on initial premium rates, the truth is it’s too early to conclude whether the ACA can deliver affordable insurance to more than 30 million Americans.
“We won’t be able to judge until four or five years out,” notes Uwe Reinhardt, a respected health-care economist at Princeton. “It’s a living thing.”