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JAMA Forum Archive, 2012-2019: Health policy commentary from leaders in the field
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Will the Cost of Health Insurance Under the ACA Be Lower Than Expected?

As we approach October 1, the date insurance exchanges will open for business, the news has been consumed with speculation as to how the rollout of the Affordable Care Act (ACA) will proceed. Supporters hold true to their belief that the law will do much to reduce the number of uninsured individuals and allow the majority of Americans to purchase insurance at more reasonable rates. Those who do not like the law believe that costs will be much more than predicted, risk pools will be unhealthier than hoped for, and sticker shock for coverage will make many Americans abstain from insurance or purchase it under duress.

Aaron Carroll, MD, MS

Of course, it’s impossible to forecast exactly what will happen in the coming months. Moreover, any such predictions will undoubtedly be clouded by whether one believes in the potential of this kind of reform or not, regardless of political persuasion.

That said, there is reason for optimism. When the ACA was passed, many scoffed at projections by the Congressional Budget Office (CBO) of the law’s future cost. They believed that reform would be much more expensive than the CBO’s estimates. Ironically, it turns out those projections may have been too high.

With respect to the exchanges, opponents have argued that because insurers are required by the ACA to offer coverage without regard to preexisting conditions (guaranteed issue) and to not charge sick people more than healthy ones (community rating), this more tightly regulated market will dramatically increase the cost of insurance, especially for those who are young and healthy. It is undoubtedly true that some people in this demographic will see their rates rise. It is also true, however, that the insurance many of these young Americans will obtain in the future will be more comprehensive than what was available before. More than 90% of them will receive subsidies from the federal government to help them pay for this insurance. And many can now obtain insurance under their parents’ plans until they turn 27 years old.

Even so, those who dislike community ratings and guaranteed issue still maintain that this is a form of generational warfare, with younger individuals being forced to pay much more for insurance just so that older ones can pay less. This isn’t entirely accurate, however. What we’re really seeing is that healthy individuals are subsidizing the sick. That’s just how insurance works. It’s always a financial “loser” if you don’t get sick and a “winner” if you do. I get why some don’t like it, but it’s how risk pooling has always functioned.

Letting all of this go for a moment, it’s worth examining what is likely to occur. A recent report by the Kaiser Family Foundation analyzed future offerings in the exchanges, as announced in 19 states. Their conclusions were that rates appear to be even lower than the CBO predicted. This is great news for both Americans and the federal government. Out-of-pocket spending may be lower than thought, and the amount needed in subsidies may be less as well.

Predictions for the Medicaid expansion are common as well. While many states have decided not to participate in the program, those that have continue to see more reasons to be optimistic. An article in JAMA and an accompanying editorial I coauthored noted that data show that those entering the Medicaid program through the expansion may be healthier than those who are already in the program. This may wind up reducing the overall cost projections, as many previously thought the uninsured poor were sicker than those who were insured. An even more recent study in Annals of Family Medicine expanded on this analysis and confirmed the findings. There appears to be good reason to believe that the cost of the Medicaid expansion will be less than predicted.

Of course, because many states are opting out, we will obviously be spending less money than predicted in the original law and analyses. Millions of people will not get the insurance they hoped for, and that will certainly reduce the cost of the law by a significant amount. These recent analyses, however, provide evidence that even for those who deemed the expansion a good deal, reality may turn out to be even better than they expected.

Still, as I’ve already noted, predictions are still just guesses. Even the premiums that are offered in the exchanges in 2014 are just bets that the insurance companies have made on how much care will cost that year. It won’t be until 2015, when we have a full year of experience, that premiums will be based on actual health care spending under the ACA. We don’t even know how many people will sign up for Medicaid. That number alone could have a significant effect on the cost of the law.

Even so, lately it seems that evidence is stacking up for the cost of the ACA to be lower than expected. It may turn out that rather than underestimating the how much it would cost, the CBO may have overestimated.

About the author: Aaron E. Carroll, MD, MS, is a health services researcher and the Vice Chair for Health Policy and Outcomes Research in the Department of Pediatrics at Indiana University School of Medicine. He blogs about health policy at The Incidental Economist and tweets at @aaronecarroll.
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