This is not the slam-dunk evidence you’re looking for

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A new study from the Society of Actuaries this week made the rounds on various conservative outlets with headline number of 32 percent — the amount by which the SOA prediction that claims costs for insurance companies offering policies on the individual market will rise after the implementation of the Affordable Care Act.

Unfortunately some have interpreted this as meaning that individual policy premiums will rise by the same amount, which isn’t true. Although traditionally claims costs are thought to strongly influence premiums the connection between the two after the ACA will be decidedly murkier to discern:

Q: But if medical claims go up, shouldn’t insurance prices also go up? How much difference could there be?

A: In the individual market designed under the health law, quite a bit, say supporters. The ACA limits insurer profits and also gives government regulators oversight of rate increases, both of which could hold premiums down.

Even if sticker prices rise, an important feature of the health law is subsidies for people to buy insurance, through tax credits for those with lower incomes. So what many newly-insured people actually end up paying themselves won’t be the same as what the insurance company bills.

Thanks partly to subsidies, “many people buying individual coverage today will see decreases in costs,” said Larry Levitt, senior vice president at the Kaiser Family Foundation. (Kaiser Health News is an editorially independent program of the foundation.)

Insurers who end up signing lots of sicker members will also be partly reimbursed for several years by a reinsurance pool designed to lower their risk. That will lower their expenses, and it wasn’t accounted for by the SOA study.

There’s a good reason reasonable people are telling you that it’s foolhardy to try an exact prediction of premiums post-2014. That’s because the market for these policies will be quite different — they’ll be subject to stricter and more uniform rules, ensconced within a regulated state-based exchange, and have a guaranteed pool of customers much larger than exists today. It should also make intuitive sense that insurance companies will be paying more on claims with individual policies. Among other reasons they’ll no longer be able deny issuance on the basis of pre-existing conditions, so the pool will be sicker and more costly. Moreover they’ll be limited in the amount they can charge folks of different ages. As the above FAQ notes, though, there will necessarily be mitigating factors for both individuals and insurers.

This speaks to the disingenuousness of detractors claiming this SOA study ‘proves’ anything other than it will cost insurers more to offer policies that don’t just cater to the most profitable individuals. The common argument, at least as it’s been made to me, is that a dollar rise in premiums has/will equal the total and utter failure of the ACA. Yet these and other reforms in the legislation have a purpose for which premium raises are not slam-dunk evidence of failure, which is providing affordable access to health care for individuals. There will be means-tested subsidies and guaranteed access to the market. Companies will have millions of new customers, as will the relevant health care sectors that will treat them. The ACA was designed to do this, not ensure that premiums will never rise ever ever ever again. As it’s entirely likely that they will rise after 2014 this will more often than not be ignored or discarded for the benefit of making political and ideological arguments. However, the basic existence of an increase wouldn’t really distinguish it from previous years; years in which there was no great conservative outcry that rising costs ‘proved’ that a non-ACA market for health insurance was a failure. The distinguishing feature moving ahead is that policies will be more affordable to people who didn’t previously have support before health care reform.


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