With less than a year to go before the major provisions of the Affordable Care Act take effect, new research published by the Schaumburg-based Society of Actuaries predicts that expected changes in member composition of the individual health care market could drive up underlying claims costs by an average of 32 percent nationally by 2017.
In addition, the study predicts high variability among states, with as many as 43 states experiencing a double-digit percentage claims cost increase and some states experiencing 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," says 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," Bohn added.
Health care coverage is expected to expand to as many as 32 million new enrollees, decreasing the percentage of uninsured Americans from 16.6 percent to 6.6 percent. According to the SOA study, enrollment in the individual market is projected to be almost 115 percent larger by 2017, with approximately 80 percent of those receiving coverage through the state exchanges.
The model used in the SOA study reveals that a significant number of 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. In the case of those states that operate a high-risk pool, the impact of these higher-cost individuals has been spread over a wider pool through approaches that vary by state. Under the ACA, the impact of these members' higher costs will be concentrated in the individual market.
The study also predicts that a number of people currently insured under employer-offered plans will move to the individual market, either because employers will stop offering coverage or because the individual perceives more value in the individual market than in their employer-provided plan. The model demonstrates that movement from employer coverage to the individual market will be biased toward higher-cost members. According to the research, even small shifts from the employer-provided market will have a significant effect on costs in the much smaller individual market.
Taken together, the study predicts that 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. As a result, the underlying claims cost of insurance in the individual market will increase by an average of 32 percent nationally, when compared to what it would have been without the reform law.
According to the researchers' model, the state-by-state picture is complicated, with the average change in individual market costs varying substantially across state lines. According to Bohn, 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. "In simplest terms, the states that will see large increases generally have low current individual costs and those showing decreases have high current individual costs, with all states moving closer together but at a higher level overall," Bohn added.
In some cases, the model projects that currently low-cost states, such as Ohio and Wisconsin, could see increases of 80 percent, while other currently high-costs states, such as New York and Massachusetts, may see double-digit decreases. States with the greatest changes in cost, assuming all states expand Medicaid, include: Top Five State Increases Top Five State Decreases Ohio: 80.9 percent increase New York: 13.9 percent decrease Wisconsin: 80.0 percent increase Massachusetts: 12.8 percent decrease Indiana: 67.6 percent increase Vermont: 12.5 percent decrease Maryland: 66.6 percent increase Rhode Island: 6.6 percent decrease Idaho: 62.2 percent increase New Jersey: 1.4 percent decrease
Knowing that not all states will expand Medicaid enrollment, the researchers also modeled results for each state under the assumption that the state does not elect Medicaid expansion. The overall conclusions of a significant increase in claims costs in the individual market, as well as wide variations in state changes, are similar in their alternate non-Medicaid expansion scenarios.