New SOA Report Indicates Increase in Cost Estimates Under PPACA as More Individuals Enter the Market

Changes in member composition of the individual health care market cause insurance companies in some states to pay on average 32 percent more for medical claims on individual health policies under changes imposed by the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), the Society of Actuaries has estimated in a report released this week. While some states will see medical claims costs per person decline, the report concluded that as many as 43 states will see double-digit percentage claims cost increases, while the opposite will be true in others, who will experience a double-digit cost decrease.

“Health care reform’s watershed year is almost here, though it will take a while for a stable state to be reached. The projections in this study suggest that when the dust settles by 2017, we can expect mixed results on the reform bill’s goals of expanding coverage and reducing costs,” said Kristi Bohn, FSA, consulting health staff fellow at the Society of Actuaries.

“The legislation will significantly reduce the number of Americans who are uninsured. Our study anticipates that the size of the individual market will more than double, an increase driven in part by people who are below 200 percent of the federal poverty line coming into the market. This group of people are considered to be ‘good risks’ and are generally expected to bring down average costs. But other changes in composition of the individual market will more than offset these lower costs, and in fact, will drive average costs up.”

Expanded Coverage

Health care coverage is expected to expand to as many as 32 million new enrollees under PPACA, reducing the percentage of uninsured Americans from 16.6% to 6.6%. According to the SOA study, this will increase enrollment in the individual market by nearly 115 percent by 2017, with approximately 80 percent of those receiving coverage through state exchanges.

With this increased enrollment, the report predicts that many people currently insured through state-sponsored high-risk pools or through the temporary Pre-Existing Condition Insurance Plan (PCIP) high-risk program will move into the individual market. Also, those currently obtaining health coverage through their employers may no longer do so as it may be more beneficial to join the individual market. The SOA study predicts that these “shifts of currently insured people from high-risk pools, the employer market, and previously uninsured persons who must pay most or all the cost of coverage to the individual market, will overwhelm the expected lower costs anticipated by the influx of newly-insured persons in the exchanges receiving federal benefit and premium subsidies.”

Disparities in Cost

Depending on how states deal with this cost, there are significant disparities which vary by state. By 2017, the estimated increase would be 80.9 percent for Ohio, 80 percent for Wisconsin, and 67.6 percent for Indiana, while states on the lower end are New York with a 13.9 percent decrease, Massachusetts with a 12.8 percent decrease and Vermont with a 12.5 percent decrease in cost. According to the report, the significant state-by-state variation can be attributed to many factors, including whether or not the state sponsored a high-risk pool, differences in current underwriting practices, and demographic characteristic and income level differences in state populations.