Expert questions study on ACA premium rate increases

Topics: Insurance, Exchanges, Health Care Reform

By Heather Drost, senior editor

A study published in Health Affairs concludes that the Affordable Care Act's (ACA) health insurance exchanges have tempered overall premium rate increases.

Premium increases for the 2017 coverage year will be finalized this fall, and initial data suggests consumers in some states could be in for significant rate hikes.

However, the study by Loren Adler and Paul Ginsburg of the Brookings Institute projected that premiums in 2017 would have to increase by a jarring amount—more than 44 percent—to reach the levels that rates would have hit without the ACA. One of the main reasons behind the lower premium costs, according to the study authors, is that average premiums for benchmark silver-level exchange plans in 2014 were 10 to 21 percent lower than average individual market premiums for comparable plans in 2013, before the exchanges launched.

"That the ACA might have caused premiums to drop so precipitously when its marketplaces took effect may seem surprising at first," Adler and Ginsburg wrote, adding, "It was to us."

Scrutiny of methodology

But Brian Blase, a senior research fellow at the Mercatus Institute, in Forbes' "The Apothecary" argues the finding that premiums dropped significantly in 2014 "contrasts with a plethora of evidence." For instance, he cites a 2014 Brookings study that found "'enrollment-weighted premiums in the individual health insurance market increased by 24.4 percent beyond what they would have had they simply followed ... trends."

Blase also takes issue with Adler's and Ginsburg's methodology. The study authors primarily focused on average premiums for the second-lowest cost silver-level (SLS) exchange plan in 2014, which serve as a benchmark for ACA subsidies. They relied on the Congressional Budget Office's 2009 projections for SLS premiums and compared them with the average premium for SLS plans in 2014, which Blase calls "problematic and misleading." He argues that those initial CBO projections "involved significant and generally unforeseeable errors," such as the slowdown in health care inflation and the effect the ACA's reinsurance program would have on premiums.

The authors acknowledged that their comparison is "not a pure apples-to-apples." In fact, in an interview with Los Angeles Times' Michael Hiltzik, Ginsburg noted that the difference in customer base and covered benefits in the pre-ACA and post-ACA markets pose difficulties. Still, he and Adler argue that the finding "is significant" and suggest the ACA exchanges "represent a clear improvement over the unstructured, non-transparent individual health insurance market that existed beforehand."

One point where Blase appears to align with Adler and Ginsburg—and many other industry analysts—is the idea that insurers initially underestimated their premium rates. But Blase argues, "The fact the ACA plan premiums have been much too low to cover insurer expenses is another reason that it is problematic to compare face value premiums of ACA plans with pre-ACA individual market plans."

Sustainability

Many analysts say 2017 premium rates could provide a more accurate picture of insurers' expenses, as the reinsurance program, which provided a financial cushion for some insurers, sunsets this year.

In an interview with Morning Consult, Adler said insurers could seek to spread out major rate increases over two years to become sustainable. He said, "This is really the first year where it looks like we really are going to see where all the horror stories look like they're going to come true in terms of premium increases." He added, "If they can claim it is claims-based and they are basing this on health costs, they can increase premiums however much they want to get back to a sustainable level."

However, not everyone believes sustainability is achievable. Bloomberg columnist Megan McArdle argues that it could be "quite possible for there to be no price at which insurance can be profitably sold."

"Last year, it was possible to believe that [large premium increases were] simply a one-time problem, because the rates for 2016 were the first that had been set with a full year's worth of data on the new [ACA] markets," she wrote, adding, "Insurers, analysts said soothingly, had initially underpriced, but now they were correcting their mistake, and things would quickly stabilize." But, McArdle concluded, "That has proven to be a false hope. If anything, losses have widened, and rates need an even bigger correction this year."

Noting the "substantial market instability" and the contrasting research, Blase wrote that if Adler's and Ginsburg's conclusions are true, "the exchanges would undoubtedly be more successful than they are."