Much of the coverage of the ACA’s negative effects has been focused on side issues, such as the incentives that it creates for employers to favor part-time workers (under 30 hours a week) over full-time workers, or the regulatory costs that it imposes on businesses. While these are certainly issues, the core question is what will happen to insurance premiums over time under the system set up by the Affordable Care Act.
The core problem rises from the combination of the ‘community rating’ regulations with the ‘guaranteed issue’ requirement. Under the ACA, insurance providers are forbidden from denying insurance coverage to individuals regardless of their health status. Additionally, they are severely restricted in their ability to charge different prices to individuals based on differing health risk. In particular, there are three considerations that allow insurance providers to charge different prices in every state: they can charge differently based on age (but can charge the elderly no more than three times the amount that younger people are paying), they can charge higher premiums in higher health cost areas (like cities), and they can charge higher premiums for family insurance plans that cover more people. Some states will also allow smokers to be charged a higher rate (up to 50% higher).
And that’s it. Insurance companies are not allowed to offer lower prices to healthier, lower-risk individuals for any reason not listed above, and they are required to offer coverage to everyone, no matter how sick. The result is that premiums will be significantly lower for high-risk individuals and significantly higher for low-risk individuals. Additionally, if I found out next month that I have cancer, it will be just as cheap for me to get insurance then as it is for me now. The obvious result is that many young, healthy individuals without health insurance will choose not to purchase it. As these low-cost people drop out of the insurance pool, insurance premiums will have to rise to reflect the higher average cost to the insurance companies of paying out on their policies.
One other factor that exacerbates this problem is the fact that, under the ACA, all insurance policies are required to offer coverage for an incredibly wide array of health care services. Under the ACA, insurance companies will no longer be able to offer so-called ‘catastrophic’ coverage to young people: coverage that only extends to extreme health care needs, such as a severe car accident or cancer treatment. Instead, every single policy must offer to cover numerous routine services that young people rarely need. In essence, the ACA limits the menu of policy choices to include only the most expensive options.
The result of all of this is that insurance premiums will be significantly higher than they are now for young, healthy people, and many of these people will decide to drop out of the insurance pool altogether, at least for a few years. Now, this is quite an obvious problem for the law to have, and there are several measures in the Act that attempt to solve it. The first is the infamous ‘individual mandate;’ simply require everyone to buy health insurance or pay a penalty, in order to keep young, healthy people in the pool. Theoretically, this would work, but politically it was by far the hardest sell in the bill. As a result, by the time the bill made it into law, the penalty had been lowered to a fraction of what was originally intended. As it stands, the penalty associated with the individual mandate is a fraction of the average cost of health insurance itself. Additionally, the penalty is essentially unenforceable; it will appear as an income tax liability, but those that do not pay it will not be subject to criminal penalties, liens, or levies. Also, there are numerous ways to become exempt from paying the penalty altogether. In short, in its current form, I would be surprised if the individual mandate was even remotely effective in fulfilling its purpose.
Another way that the bill tries to prevent individuals from waiting until they fall ill to purchase insurance is the ‘open enrollment’ policy. Under this policy, the only time that you can purchase insurance on the exchanges is from October 1st to December 7th (except for this first year, when the period spans from Oct 1st to March 31st). Aside from the obvious problem that most people thinking about buying insurance don’t know that this policy exists, ‘open enrollment’ only influences people who are consciously trying to game the system. For young healthy people who look at the high premiums and simply decide to take their chances (which was the major concern in the first place), open enrollment does not give them an additional reason to purchase insurance.
One way for me to ground this discussion is to think about what I, personally, would do if I did not already get health insurance through my university. Based on a precursory look, it seems like buying health insurance for myself in the exchanges would cost about as much as my rent does (certainly much more than the mandate would cost me, if I even had to pay it). Meanwhile, I haven’t been admitted to a hospital since the third grade, when I split my eyebrow open playing catch and needed eight stitches. I am precisely the kind of person that the Affordable Care Act is relying on purchasing insurance, but I think I’d go without, at least for a few years.
Finally, it’s worth mentioning that we’re not talking about capriciousness here. This isn’t about people consciously trying to not make the system work. Although there are a few Republican hacks that are trying to make that happen, the simple fact is that the structure of the ACA disincentivizes young, healthy people from buying insurance. Even if most people want the system to work, on a personal level it won’t make sense for many of them to purchase insurance. The more young people opt out, the higher premiums go, and the more expensive it becomes for those still purchasing insurance.