This commentary originally appeared in The Monitor on August 3, 2015.
The U.S. Supreme Court’s ruling that subsidies for health coverage are allowed on exchanges created by the federal government — and not just those created by states — was a victory for supporters of the Affordable Care Act and the 6.5 million Americans currently receiving subsidies on federal exchanges.
Or so it seems. Lost in the celebration was the reality of what healthcare reform is doing to insurance markets across the country: making coverage less affordable.
Stringent insurance regulations of the ACA — specifically: mandatory benefits; age rating restrictions and actuarial value requirements — are rapidly driving up the cost of coverage. Subsidies offset these rising costs for some, but it also hides the true cost of coverage from the subsidized and oblige everyone else to pay more.
Lost in the media coverage of King v. Burwell was the reality that the number of Americans who don’t qualify for a subsidy but still must purchase ACA-compliant coverage is more than twice the number of those who are receiving subsidies.
More than 15 million Americans, thanks to the ACA, are paying significantly more for health coverage than they would without the law’s onerous health plan regulations. By contrast, only about 6.5 million nationwide qualify for subsidies on the 34 states with a federal exchange (and many of these people will have to pay a portion of their subsidies back if their income exceeds what they reported it would be this year.)
Young people are hit especially hard, paying as much as 44 percent more for coverage than they would without these regulations in place. In Texas, repealing these federal insurance requirements would save a 21-year-old more than $1,000 and a 64-year-old nearly $600. For those who are self-employed or whose employer doesn’t offer coverage, these higher costs directly affect their income and hinder economic mobility.
Last year, about 2.8 million Texans had individual or small-group coverage, yet only about 448,000 — a mere 16 percent of the total market — received subsidies through the exchange. This year, the number of Texans receiving subsidies has grown to more than 800,000, but it’s still a small fraction of the total individual and small group market in the state.
Besides this inequity, there’s another major problem with the ACA insurance reforms: Even those with subsidies will face rising premiums next year. Insurance carriers are beginning to file proposed rates for 2016 and, so far, premiums are 21 percent higher in Texas, with some carriers increasing rates by more than 30 percent. In other states, proposed rate increases are even more severe, exceeding 50 percent.
The reason for these skyrocketing rates is that insurance companies now have a full year’s worth of medical claims data from 2014 and they know how much it costs to cover the exchange population. It turns out that the folks signing up on the ACA exchange are older, sicker and more expensive to cover than many insurers estimated, which means rates must go up.
In addition, at the end of next year several ACA programs will expire that currently protect insurance companies selling plans on the exchanges from severe losses. Because of these programs, many carriers have underpriced their plans in hopes of capturing market share, knowing that if the gamble didn’t pay off they wouldn’t suffer the full consequences. We should expect all carriers on the exchange to increase premiums again in 2016 as they safety net programs expire.
In the very near future, many Texans now receiving subsidies will have to shell out more for ACA-compliant coverage, just as taxpayers will have to pay more of their hard-earned income to cover the costs of those subsidies.
The Supreme Court’s ruling in Burwell might have saved subsidies on federal exchanges, but it didn’t fix the ACA’s many problems and it certainly will not lower the cost of coverage. On the contrary, Americans are now going to feel the full brunt of this increasingly unaffordable federal healthcare reform.