APRIL 2014 UPDATED ESTIMATES OF THE EFFECTS OF THE INSURANCE COVERAGE PROVISIONS OF THE AFFORDABLE CARE ACT, APRIL 2014 7
CBO
views differ on how much of the slowdown is attributable
to the recession and its aftermath and how much to other
factors. Exchange premiums will be affected not only
by underlying growth in health care costs but also by
changes in the average health status of enrollees, changes
in federal programs that spread risk, and changes in plan
characteristics. Those three factors are discussed in more
detail below.
Effects of the Health Status of Exchange Enrollees. The pre-
miums for policies sold in the exchanges will be influ-
enced by the expected health status of enrollees in the
exchanges, and CBO and JCT anticipate that exchange
enrollees in the future will be healthier, on average, than
the smaller number of people who are obtaining such
coverage in 2014. Such an outcome would be expected if
people who are less healthy are more eager to obtain
insurance, and it would be consistent with enrollment
and medical claims in Massachusetts after that state intro-
duced subsidized exchanges in 2006.
10
That factor is
expected to lower premiums in 2015 relative to those in
2014.
CBO and JCT do not expect any further significant shifts
in the average health status of exchange enrollees after
2015 under current law. As a result, that factor is not
expected to raise or lower premiums after 2015.
Actual exchange premiums for 2015 may differ from
those CBO and JCT have projected because insurers
could have different expectations of their costs for that
year. For example, if enrollees in exchange plans in 2014
are significantly less healthy than insurers had expected,
and their care therefore is significantly more costly, insur-
ers could
project notably higher cos
ts
in 2015 and charge
correspondingly higher premiums in 2015 than in 2014.
However, anecdotal reports to date have been mixed and
provide no clear evidence that insurers have been substan-
tially surprised by the health status of their enrollees.
Moreover, CBO and JCT’s projections are national aver-
ages, and premiums in some places in the country will
probably be much higher or lower in 2015 than CBO
and JCT have projected for the nation as a whole.
Effects of the Reinsurance Program. The premiums for
policies sold in the exchanges also are affected by the
reinsurance payments that the government will make to
plans whose enrollees incur particularly high costs for
medical care—that is, costs that are above a specified
threshold and up to a certain maximum. The reinsurance
program applies to all nongroup insurance that complies
with the ACA’s market and benefit standards and that is
issued from 2014 through 2016, either within or outside
of the exchanges. (For more information on the ACA’s
provisions governing the nongroup market, see Box 1.)
Under the reinsurance program, CBO and JCT project,
the government will collect $10 billion in 2015, $6 bil-
lion in 2016, and $4 billion in 2017 (for insurance
issued in 2014, 2015, and 2016) through a per-enrollee
assessment on most private insurance plans, including
self-insured plans and plans that are offered in the large-
group market.
11
CBO and JCT expect that reinsurance
payments scheduled for insurance provided in 2014 are
large enough to have reduced exchange premiums this
year by approximately 10 percent relative to what they
would have been without the program. However, such
payments will be significantly smaller for 2015 and 2016,
and they will not occur for the years following. Therefore,
that program is expected to have resulted in lower premi-
ums in 2014, to reduce premiums by smaller amounts
effect thereafter.
Effects of the Characteristics of Exchange Plans. The plans
being offered through exchanges in 2014 appear to have,
in general, lower payment rates for providers, narrower
networks of providers, and tighter management of their
subscribers’ use of health care than employment-based
plans do.
12
Those features allow insurers that offer plans
through the exchanges to charge lower premiums
(although they also make plans somewhat less attractive
10. See Amitabh Chandra, Jonathan Gruber, and Robin McKnight,
“The Importance of the Individual Mandate—Evidence From
Massachusetts,” New England Journal of Medicine (January 2011),
vol. 364, no. 4, pp. 293–295, http://tinyurl.com/496lfct. CBO
analyzed unpublished data provided by the authors of that article.
11. Under reinsurance, an additional $5 billion will be collected
from health insurance plans and deposited into the general fund
of the U.S. Treasury. That amount is the same as the amount
appropriated for the Early Retiree Reinsurance Program (which
was in operation before 2014) and is not included here as part of
the budgetary effects of the ACA’s insurance coverage provisions.
12. See McKinsey & Company, Exchanges Go Live: Early Trends in
Exchange Dynamics (October 2013), http://tinyurl.com/qd3kqfl,
and Emerging Exchange Dynamics: Temporary Turbulence or
Sustainable Market Disruption? (September 2013),
http://tinyurl.com/og3tu9d.