Debate about whether consumers will pay more for insurance under health reform has become political, with conservative organizations saying Obamacare will increase premiums and liberals saying it won’t, at least not when you take into account taxpayer-funded subsidies for health coverage. In a new study, RAND Corporation joins the latter group. But concluding that consumers will pay less because of public subsidies is misleading, and does not answer the question, “How much more will Americans pay to be covered under the Affordable Care Act?” The issue is one of accuracy, not political ideology. RAND also estimates changes in enrollment, which is worth looking at for yet another insight into health reform law’s effects.

Debate on Premium Increases under the ACA:

RAND Corporation has the latest estimates on premium increases and enrollment under the Affordable Care Act (ACA). Uncertainty colors all estimates of the ACA’s impact because the health reform law provisions are unprecedented in scope and complexity. Projections of premium changes are especially difficult and have become highly political.

In this study, sponsored by the U.S. Department of Health and Human Services (HHS), RAND joins the Urban Institute and others arguing that rate shock from higher premiums will not be significant after health reform provisions take effect in 2014. On the other side of the argument are studies from the Society of Actuaries, the conservative American Action Forum led by former Congressional Budget Office (CBO) Director Douglas Holtz-Eakin, and several state-specific premium projections. See Milliman’s projections for California and Indiana as examples.

Several aspects of the health reform law could lead to higher premiums, particularly for young healthy men:

An Incomplete Picture of Premium Costs:

To counter predictions of premium increases, studies like RAND’s and the Urban Institute’s take into account federal subsidies through the exchanges for people with incomes from 100-400 percent of the federal poverty level (FPL). “After accounting for tax credits, average out-of-pocket premium spending in the nongroup market is estimated to decline or remain unchanged in all states considered and in the nation overall,” the RAND report concludes.

But that’s as misleading as saying highways without tolls are free. To get a more accurate picture of how much Americans will pay for health insurance, you need to take into account not only what the consumer pays directly, but also the cost of federal premium subsidies, and tax penalties for remaining uninsured. In addition, many consumers will be forced to buy insurance with more benefits than they want because of minimum benefit requirements under health reform. Those are all costs that should be included in any study that tries to answer the question, “How much more will Americans pay to be covered under the ACA?”

RAND is careful to say health reform’s effects on premiums are uncertain, and it’s main conclusion about premiums is a little flat. “[C]omparisons of average premiums with and without the Affordable Care Act may overstate the potential for premium increases.” Some people will have higher premiums and others will have lower premiums, RAND says.

Of course, that’s at the heart of concerns about rate shock: Young healthy people will pay more than they should for coverage so that more expensive groups can pay less.

Cost-Shifting Also Could Matter:

Much of health reform’s coverage expansion is funded through Medicare provider reimbursement cuts and additional Medicare taxes for individuals earnings more than $200,000, or couples earning more than $250,000. RAND does not estimate the effects of those provisions on premiums because the report projects nongroup and small group premiums for nonelderly people, and the provisions primarily affect the elderly and hospitals.

But again, that gives an incomplete picture of how much Americans will pay to be insured under health reform. A RAND study from several years back found hospitals charged private health plans more after Medicare reimbursement cuts, and the same could happen after 2014.

Cost-shifting could be more pronounced in states that choose not to expand Medicaid. Hospitals across the country will face cuts in disproportionate share hospital (DSH) payments for treating uninsured patients. Yet in states that don’t expand Medicaid, many people who would have been covered under Medicaid will remain uninsured and will generate losses hospitals will try to make up elsewhere.

RAND Enrollment and Premium Projections:

RAND’s report also estimates enrollment changes under health reform. Several research and policy organizations have estimated the ACA’s effects on Medicaid enrollment and Health Insurance Exchange enrollment. The models, methods and results are all different.

RAND’s estimates are based on its COMPARE microsimulation model applied to 10 states: Florida, Kansas, Louisiana, Minnesota, New Mexico, North Dakota, Ohio, Pennsylvania, South Carolina, and Texas.

Uncertainty colors all estimates of the ACA’s impact because the Affordable Care Act is unprecedented and complex. Little precedent exists for modeling how consumers, health plans, and providers will react to the individual mandate to purchase coverage, subsidized premiums on the exchanges, greatly expanded Medicaid eligibility, and outreach to help newly eligible people sign up for Medicaid and Qualified Health Plans (QHP).

Despite those uncertainties, new estimates are always worth looking into. Here is an overview of the RAND study results, including both enrollment and premium increase projections:

  • The ACA will significantly decrease the number of uninsured nonelderly individuals. RAND estimates 19.6 percent of those people would be uninsured in 2016 without the ACA, whereas it predicts 8.2 percent of people – or 22.8 million people – will be uninsured with the ACA.
  • Nongroup health insurance market enrollment is expected to be double what it would be without the health reform law, a number that includes health plan enrollment both inside and out of the exchanges.
  • In five of the modeled states, RAND found no statistically significant change in nongroup insurance premiums by 2016. Three states showed premium increases of up to 43 percent, and two states showed premium decreases. There are some points worth debating on this finding. More on that below.
  • In the small group insurance market, RAND estimated the ACA would increase enrollment in most states in modeled but would have little impact on premiums.

RAND’s enrollment estimates are pretty close to the latest CBO estimate and to the Urban Institute numbers. Both RAND and the Urban Institute assume all states will expand Medicaid, though almost half of states have already decided not to expand. The CBO’s figure does take the option not to expand Medicaid into account, and it estimated 17 million fewer Medicaid enrollees and 8 million more uninsured.

Read the short version of RAND’s study here, and the long version here.