Comparisons of average health insurance premiums with and without Obamacare may overstate the potential for premium increases, according to a new study sponsored by the Center for Consumer Information and Insurance Oversight, a division of the Centers for Medicare and Medicaid Services, and conducted by RAND Health.
The study used a model to estimate the effects of health care reform on health insurance enrollment and premiums in 10 states, including Pennsylvania, in 2016. However, the study said, that analytic framework “does not allow us to consider whether firms reduce workers’ hours, change premium contribution rates or alter their sizes in response to the law. This type of strategic response could lead small group enrollment under the Affordable Care Act to be lower than estimated if, for example, firms convert some workers to part-time status to avoid offering coverage.”
Assuming that age, plan actuarial value and tobacco use held constant, the study said, it showed that the law would cause no change in nongroup premiums in half the states studied, including Pennsylvania.
But, it noted, premiums “are complicated and must be interpreted carefully because the law introduces complex changes and because of the limitations of existing data and uncertainties about insurer behavior. The law’s requirement that individuals obtain plans with a minimum actuarial value will cause some enrollees to shift from less-generous into more-generous plans, which could result in higher premiums but also more-comprehensive coverage.”
For small-group coverage, the study estimated that for the United States overall and nine of the states including Pa., premiums standardized for age, actuarial value and tobacco use will be unchanged by the law. In three states including Pennsylvania it estimated that there would be a modest decline in the number of people in small group coverage, ranging from 1.4 to 2.2 percent.
Other notes of interest from the study are as follows.
• The study said states face the decision of whether to merge or combine their small group and nongroup risk pools. “If risk pools are merged, enrollees in the small group and nongroup markets could face the same premiums for comparable coverage. If risk pools are split, premiums in the two markets could diverge.” The study generally assumes the risk pools are split.
• “We assumed that individuals and families will choose the option that maximizes their health-related utility. We do not account for the possibility that there could be coordination costs associated with having family members enrolled in different plans — for example, costs caused by added paperwork requirements.”
• “Firms maximize the aggregate utility of their workers, enabling them to make the health insurance decision that provides the best value to the most workers. In some cases, the optimal decision could be to not offer insurance or drop health insurance coverage.” Using standard economic theory, “we assume that workers face a trade-off between health insurance and wages, so that wages fall as health insurance costs increase, and vice versa. The wage-health insurance trade-off assumption implies that, if the firm opts to stop offering health insurance coverage, wages will have to increase.” The study assumes that for every dollar reduction in health care spending, the firm will pass 80 cents back to the workers.
• “Actual premiums may be heavily influenced by insurers’ expectations about enrollee spending, which could differ from the model predictions. In addition, premiums offered in the initial years of Affordable Care Act implementation could reflect strategic behaviors on the part of insurers that are not included in the model. For example, insurers might offer low premiums in 2014 in order to capture market share and build brand loyalty. We present model results for 2016 in part because the model does not capture these early-implementation uncertainties, which we anticipate will have the largest effects in 2014 and 2015.”
• Finally, the new health insurance marketplaces will class plans into metal tiers, with the more costly metals representing plans that are more generous and have a larger actuarial value. The study assumes that actuarial values for firms with more than 100 workers will remain constant at 0.85. For smaller employers, it predicts the following metal plans under health care reform.