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ACA - Exchanges and Rate Bands Effect on Premium Rates

Estimated Cost Impact of the Affordable Care Act (ACA) known as the Health Reform Law on the premiums of a $1,000 deductible PacificSource Elect Premier plan based on information and estimates available at this time.

Exchanges are also being referred to as Marketplaces.

Age RangeCurrent  5-1 RatesConverted 3-1 Rates2014 Rate  IncreaseAdd Guarantee  IssueAdd  Essential  BenefitsWakely  Insurer FeeACA   Reinsurance  FeeOregon  Exchange  FeeIRS  Provider Excise  TaxACA Increase
0-1$224$329$357$368$386$392$397$411$42087.6 %
2-17$179$296$322$331$348$353$358$371$380112.3 %
18-20$236$337$366$377$396$402$407$421$43082.4 %
21-24$244$344$374$385$404$410$415$430$43979.9 %
25-29$283$373$404$416$437$444$449$465$47467.5 %
30-34$321$399$433$446$468$476$481$497$50757.8 %
35-39$353$423$459$472$496$504$509$526$53651.7 %
40-44$446$490$532$548$575$584$589$609$61938.7 %
45-49$523$545$591$609$639$649$655$677$68731.3 %
50-54$701$675$732$754$792$804$810$838$84720.8 %
55-59$858$789$856$882$926$940$946$978$98815.1 %
60-64$997$889$964$993$1,043$1,059$1,065$1,101$1,11111.4 %

The overall average increase for our book of 2000 clients was 38.9 percent.

Estimating the Impact of the Affordable Care Act on Health Insurance Rates in Oregon

To estimate the impact on rates in 2014 under the Affordable Care Act required establishing an existing baseline plan as a basis to start from. I chose the $1,000 deductible PacificSource Elect Premier plan for this purpose because it was one that closely matched one of the actuarial values of the four metal plans (Platinum, Gold, Silver and Bronze). It closely matched the Gold plan requirements of an 80 percent actuarial value and already included several of the required essential benefits.

The first challenge was to convert the plan’s 2013 premium rates. These were based on a 5 to 1 rate band and had to be converted to the newly required 3 to 1 rate band, meaning the rate for oldest age band could only be three times the rate for the youngest age band. To accomplish this, I used our existing book of about 2,000 individual clients and determined the number in each age band. I then determined the relative change in premium between age bands as a measure of risk. With the current premiums, the percentage of members in each age band and relative increase of risk between age bands, I solved a mathematical equation for the new premiums that, when applied to our clients, would generate the same total annual premium dollars for the group as the current premiums would. This had the effect of benefiting older members at the expense of younger ones.

I then estimated an estimated 8.5 percent increase in premiums for 2014. I may be a little optimistic here, but recent rate filings indicate this to be the trend.

Next, I had to estimate the cost of guaranteed-issue requirements for the new plans. The Office of Private Health Partnerships estimated the current cost at less than one percent based on the percentage of members in the Oregon Health Authority High Risk Pool (formerly OMIP) and those members on Portability coverage when compared to the total insured population of the state. I estimated a 3 percent increase, since those who already have health problems and are newly eligible for a subsidy will likely be the first ones to sign up. Furthermore, the high cost of coverage for young healthy people, even with the help of a subsidy, will likely result in many of them electing to pay the penalty. Any who are really worried about being without health insurance may elect to purchase a Hospital Accident Limited Benefit plan, as they know if they get really sick they can get coverage during the next open enrollment.

I estimated the cost of Essential Benefits at 5 percent. This is a gut feel estimate based on talking with several insurance company marketing representatives and keeping up to date on what additional benefits that still have to be added. (These are the so called “Free” benefits.)

Next, the Oregon Insurance Division contracted with Wakely to analyze the impact on prices about a year ago. The results of this analysis are referred to as the Wakely report. They estimated that a 1.55 percent insurer fee would be added to the premium and I have included this.

HHS recently added a $63 annual contribution to cover reinsurance. This is shown at $5.25 per month and added to premiums.

Recently, Cover Oregon determined they needed a 3.47 percent fee in order to make the exchange self-sustaining by 2015.

Then on Friday, March 1, 2013, the IRS announced an Excise Tax on Insurance Companies. AHIP estimates that this will add $110 to an individual policy in 2014 and increase from there. This is another $9.17 per month.

The final estimated price of a Gold plan is shown. To get the Platinum plan price, multiply by 1.125. To get a Silver plan price, multiply by 0.875. To find the Bronze plan price, multiply by 0.75.

The net result of all this is that premiums will increase for everybody with some help in the form of subsidies for those who quality. This is not surprising since health insurance is nothing more than a Debit Card used to purchase medical services. The Affordable Care Act will add several fees to the Debit Card and require you to use that card to purchase more care than before, without addressing the cost of the medical services you are buying. It will also require you to use your Debit Card at the Company Store (Exchange) in order to be able to get your Discount Coupons (Subsidies).