Sticker shock is coming this fall for millions of people who shop for an Affordable Care Act individual market plan for 2017. Some of the price increases are dramatic. Blue Cross Blue Shield of Texas (covering 600,000 enrollees) requested a 59 percent premium increase. Providence Health Plan in Oregon (covering 100,000 enrollees) requested a 32 percent hike. Anthem of Indiana (covering 70,000 enrollees) requested a 29 percent hike.
To date, the national weighted average requested increase is about 20 percent. A 20 percent increase means roughly $1,000 in higher premiums for a single person and $3,000 in higher premiums for a family of four. That’s real money and will hurt millions of people. For the enrollees who are partly protected from the rising premiums because of subsidies, American taxpayers will be worse off from the premium hikes.
Many others will be hurt from their insurance company withdrawing from state markets because of such huge losses. This includes the largest insurer in the country: UnitedHealthcare. Based on recent data, I estimate that insurers selling ACA plans likely incurred losses of more than $1,000 per enrollee in 2015.
The massive losses occurred despite an enormous back-end subsidy program that compensates insurers for much of the cost of their most expensive enrollees. For 2014 and 2015, this program will deliver $15 billion to insurers selling ACA plans. This subsidy program ends after 2016, which is one reason premiums are spiking.
The large premium increases indicate that the ACA is not working. People enrolling in ACA plans have much higher average medical claims than was expected. The reason: young and healthy people are generally refusing to purchase ACA plans. In fact, enrollment in the ACA exchanges is less than half of what was projected when the law passed in 2010.
For the ACA’s complicated structure to work, a large number of relatively young and healthy people needed to sign up. They were critical because the ACA contains provisions that reduce premiums for older people and those with expensive health conditions — and provisions that incentivize people to wait until they acquire a health condition to purchase insurance.
Large subsidies available for lower-income people have led many with income below about $24,000 to enroll. Those subsidies are, however, either smaller or unavailable to people with higher income. As a result, people with income above about $24,000 tend to face high premiums and deductibles for insurance with a lot of Washington-mandated requirements that people don’t want or need.
At the beginning of last year, a statistical model from the Urban Institute, a left-of-center Washington think tank, projected that 39 percent of 2016 exchange enrollees would have income above about $36,000. It turns out that only about 12 percent of enrollees have income above this amount.
For the most part, the ACA has made people with middle-class income who don’t receive insurance through work much worse off. They can no longer buy an affordable health insurance plan, and they must pay the individual mandate penalty—which averages about $1,000 per person.
Even people covered by an ACA plan are increasingly unhappy with their coverage. A recent survey from the Kaiser Family Foundation found that 54 percent of enrollees rate their coverage as “fair” or “poor” — up from 42 percent of enrollees last year. Enrollees are increasingly unhappy about the rising premiums and deductibles. And many, if not most, of these enrollees receive large subsidies to make the plans more attractive.
It also turns out that one of these subsidies is likely illegal. Last month, a federal judge ruled that the Obama administration has been making unlawful payments to insurance companies — payments insurers use to reduce plan deductibles and cost-sharing amounts for many lower-income enrollees.
The U.S. House of Representatives sued the administration over these payments, arguing that the executive branch cannot spend money that was not appropriated by Congress. U.S. District Court Judge Rosemary Collyer agreed, ruling that the administration’s payments — which likely totaled $7 billion for 2014 and 2015 — violated the constitutional separation of powers. Without these subsidies, enrollment in the ACA would be even further below expectations as premiums would substantially increase.
Midway through the third year of the ACA’s key provisions taking effect, it’s increasingly clear that the law is failing. The real question now is whether politicians in Washington care and can reverse course.