The FactsSince the law has not taken full effect yet, we have to rely on studies that estimate the potential impact. A 2011 White House report, using Congressional Budget Office data, argues some small businesses (ie, sole proprietors with employees) will have access to a new marketplace where they can compare benefits and services and find a plan that works for them. The theory is that these new exchanges will help drive down costs for businesses.
For instance, the White House report says the CBO estimates that small employers will experience decreased premiums of up to 2 percent. The report, also citing CBO, also claims that individuals purchasing coverage on the exchanges would see premium savings of 14 to 20 percent when compared to the purchase of the same policy without the law.
Sounds great, right? But the law also mandates a number of significant changes that many experts believe will put upward pressure on premiums. There are potentially important policy reasons for each of these changes. But remember, you usually don’t get something for nothing.
Here are some of the key factors:
1. Currently insurance companies offer lower premiums to younger Americans, since they generally have lower health costs. But starting in 2014, the law implements an age band so that the amount an older individual pays will be no more than three times what a younger individual pays. So if a state currently allows an age band of 5:1, older Americans might see a premium decrease — but younger Americans would see a premium spike.
2. A similar dynamic exists with the law’s requirement that insurers selling policies through the health exchanges will no longer be able to charge different premiums based on a person’s health status when coverage is first purchased. This is known as a community rating. So healthier individuals generally will see higher premiums.
3. The popular provision that requires insurers to accept everyone regardless of their health status (i.e., pre-existing conditions) also will transfer costs to healthier individuals. (Continues)