5

So I hear a lot about rising premiums and that the ACA is the leading cause. Recently I heard that the majority of people still get their health insurance through their employer.

Is there merit that the rise in ACA premiums is affecting the premiums for people and employers who do not participate in the exchange?

6

There are a lot of moving parts, individual premiums and annual increases have little to do with employer premiums and annual increases and vice versa. Most people think of XYZ insurer as a single company with a single pool of insured folks. This common knowledge isn't accurate. Insurers pool their business segments separately. This means that Individual, small business, mid-size business, and large business are all different operating segments from the viewpoint of the insurer.

It's possible to argue that because so many people are covered by employer plans that individual plans have a hard time accumulating the required critical mass of subscribers to keep increases reasonable.

Age banded rating:

Individual coverage and small group coverage is age rated, meaning every year you get older. In addition to your age increase, the premium table for your plan also receives an increase. Employers with 100+ eligible employees are composite rated (in general), meaning every employee costs the same amount. The 18 year old employee costs $500 per month, the 64 year old costs $500 per month. Generally, the contributions an employee pays to participate in the plan are also common among all ages. This means that on a micro level increases can be more incremental because the employer is abstracting the gross premium. Composite rating generally benefits older folks while age rating generally benefits younger folks.

Employer Morale Incentive:

Generally the cost to an employee covered by an employer plan isn't directly correlated to the gross premium, and increases to the contribution(s) aren't necessarily correlated to the increases the employer receives. Employers are incentivised by employee morale. It's pretty common for employers to shoulder a disproportionate amount of an increase to keep everyone happy. Employers may offset the increase by shopping some ancillary benefit like group life insurance, or bundling the dental program with the medical carrier. Remember, employees don't pay premiums they pay contributions and some employers are more generous than others. Employers are also better at budgeting for planned increases than individuals are.

Regulators:

In many of the states that are making the news because of their healthcare premium increases there simply isn't a regulator scrutinizing increases. California requires all individual and small group premiums to be filed with the state and increases must be justified with some sort of math and approved by a regulator. Without this kind of oversight insurers have only the risk of subscriber flight to adjust plan provisions and press harder during provider contract negotiations.

Expiring Transitional Reinsurance Fee and Funds:

One of the fees introduced by healthcare reform paid by insurers and self-insured employers established a pot of money that individual plans could tap to cope with the new costs of the previously uninsurable folks. This fee and corresponding pot of money is set to expire and can no longer be taken in to account by underwriters.

Increased Treatment Availability:

It's important that as new facilities go online, insurer costs will increase. If a little town gets a new cancer clinic, that pool will see more cancer treatment costs simply as a result of increased treatment availability.

Consider that medical care inflation is running at about 4.9% annually as of the most recent CPI table, the rest of the increases will result from the performance of that specific risk pool. If that risk pool had a lot of cancer diagnoses, you're looking at a big increase. If that risk pool was under priced the prior year you will see an above average increase, etc.

  • So let me see if I understand what you are saying. People currently insured under the ACA could be considered as being within an individual or small business pool. So employers who are also considered to be in a small business pool could see their insurance premiums affected by the ACA rising premium while large business pool may be unaffected? – MickB Nov 4 '16 at 20:29
  • @MickB The ACA was an extremely wide sweeping law that touched health insurance at every level. Typically when people say "ACA Coverage" or "Obamacare" they're referring to individual coverage, but really the ACA impacted everything. If you were a large enough employer offering plans already in excess of the ACA mandates you were subjected to some new fees and taxes, and costs related to increased administration and reporting requirements. Whether or not the ACA has made insurance more expensive or accelerated the rate of premium change is a whole different debate. – quid Nov 4 '16 at 20:40
  • @MickB I wrote a different answer about the general pooling between the different segments of employer groups: money.stackexchange.com/questions/36206/… it's not directly related to your question but you might find it interesting. – quid Nov 4 '16 at 20:41
3

It's likely impossible to determine why premiums are increasing in a meaningful way; not only is the interrelationship between the various data points very complex, but some of the increases are likely due to decisions by people who do not and will not publicly post what they decided and why.

However, it is possible to compare health insurance premium increases over time to see if the increases in employer-sponsored health insurance premiums are comparable or not to the pre-ACA timeframe.

Since the ACA phased in over a few years, we can compare the period 2008-2010 "pre-ACA" and 2013-2015 "post-ACA", ignoring 2011-2012 as being unclearly affected by the ACA phase-in. For this, I will look at single coverage premiums only for the purpose of simplifying the analysis.

I found a good table of 2008-2010 premiums from the NCSL; they list the following:

2010: 4,940
2009: 4,669
2008: 4,386

Kaiser Permanente had a good list for 2013-2015 here:

2015: 5963
2014: 5832
2013: 5571

From 2008-2010, the average growth was around 6% per year. From 2013-2015, the growth averaged about 3%. In both of these cases we are comparing total premiums (sum of employer and employee contributions).

So, from a data-driven look, it seems that the premium growth is lower post-ACA than pre-ACA, so it's unlikely that the ACA could be accused of causing increased premium growth. Of course, this is US-wide average, and on a state-by-state basis there may well be significant differences that may or may not be related to the ACA.


One thing that is covered on the NCSL page linked above that is interesting: while the premium growth has slowed significantly (about 50% of the growth pre-ACA), health insurance premiums are a higher proportion of employee's wages, and that growth is continuing - because wage growth has not kept pace with inflation post-2008 recession. Employee contributions also may be higher post-recession; many companies reduced their contribution percentage (as my then employer did, for example).


Finally, increases in the ACA plans are also commonly overstated. They largely are in line with employer plans or even less.

In 2015, premiums were basically flat, decreasing slightly in fact - see the KFF analysis here. 2016 saw a 3.6% by this methodology (see the 2016 analysis).

It's very easy to cherrypick examples that are favorable to any interpretation from the data, though; there are such big swings as a result of the different conditions in the marketplaces that it's easy to pick a few that have high swings and claim the ACA has massive premium increases, or pick a few that have low swings and claim it's reducing costs.

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Depends on the insurance company itself, as well as the costs of treatments.

Imagine an ideal scenario where costs of treatments stayed the same, and that all insurance plans were segregated and pulled from the same pool of funds to pay for treatments. Then employer subsidized health insurance plans would be unaffected by the drama in the ACA plans.

Those are the factors to consider, from my understanding. But I wouldn't be surprised if the burdens of accepting people that would previously never have been serviced by these companies has greatly distorted the market as a whole.

  • I don't think this answers the question. – Joe Nov 2 '16 at 1:09

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