Obamacare Evaluation Project - Cost Update: Medical Claims Grow 32%
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In a recently released report for the Manhattan Institute's Center for Medical Progress, my colleague, Paul Howard, and I grade the Affordable Care Act on its predicted impact on the cost of providing health care. Based on available evidence from CMS, CBO, and other analysts, we found little evidence that the law would reduce health care spending; indeed, most evidence indicates that individual and family premiums, as well as total national health care spending will grow unabated (and possibly faster).

However, given that implementation of the ACA is still in progress, we acknowledged that our findings may change as new evidence surfaces, and that we will track and report on new findings as they are released. This is the first in a series of updates.

The nation's leading risk analysts, the Society of Actuaries (SOA), have just released a report projecting an average national premium increase of 32 percent once the ACA is fully implemented. Pre-ACA, the group estimates a national non-group monthly premium of $314 per-person; with full implementation (which the analysts peg at 2014 - an important assumption), and with all states expanding Medicaid, the cost will rise to $413. Further, this increase only represents projected growth in the cost of medical claims (because of the newly insured, increased utilization due to reduced out-of-pocket spending, changes in the composition of risk pools [some states will have healthier newly insured, most will not] and other factors) but does not directly address premiums. The study notes that the analysis "excludes other important items that are needed to model premium, including admin, taxes, and subsidies." Total premiums paid will likely be greater than the medical claims cost.

Interestingly, the projections also indicate significant variation among states - five states (Massachusetts, New York, New Jersey, Rhode Island, and Vermont) will see decreases in average medical claims costs - averaging a decline of 9.4 percent for the five states. These decreases can be due to a healthier uninsured population in these states, but also may point to the fact that these states are already heavily regulated, even in the non-group market - thus additional regulations, would have little impact. Excluding these five states raises the average increase to 35 percent nationally; 43 of these states are projected to see double-digit increases averaging 37 percent. At the upper end, Wisconsin is slated to see the greatest increase in claims costs - about 80 percent relative to the non-ACA baseline.

While the study's results underscore the point that the ACA will necessarily increase health care costs and spending, there may be a silver lining. The national variation in medical claims costs, though increasing in the model, will become more uniform.

Measures of Variation

Measure

Pre-ACA

Post-ACA

Range (maximum - minimum)

$407

$257

Sample Variance

8532.85

3769.7

Standard Deviation

92.37

61.40

 

The table above is based on SOA's national results and offers three common measures of variation. The range is simply the highest average claims cost minus the lowest; the sample variance is the average of the squared deviation of the values from the sample mean (how much the observations differ from the expected value of the sample); the standard deviation is simply the square root of the variance.

For every measure, there is less dispersion after the ACA is implemented; though it may be difficult to see the forest for the trees, less variation in health care costs nationally may at least help to paint a more accurate picture of the state of health care in the U.S. This can help lead to a more national market for health care and health insurance - where insurers would worry less about meeting each localities individual mandates, and instead concentrating on managing costs through networks, cost sharing, and other incentives. The ACA, however, "handcuffs" the industry through stringent MLR requirements, limits on catastrophic plans, and unnecessary "essential" health mandates, so that the benefits from a national market may be limited.

Overall however, SOA's results simply echo what every credible source has been indicating over the past three years - health care spending will grow, and so will health care costs. 

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