United Health Care (UHC), the largest health insurance company in the US, yesterday held a webinar for agents on changes they will be making to their products to comply with the Affordable Care Act (ACA). This is the first time that I have seen a major carrier give specific cost increase estimates for medical insurance plans. They said that “consumers (both group and individual buyers) will face substantial price increases… (and) new pricing rules and product design mandates will have a significant impact on the price consumers pay for insurance in 2014 and beyond.”
UHC presented a graph that estimated the premium increases in various market segments likely in 2014 as a result of the requirements of the ACA. UCH estimates that premiums will increase 116% in the individual market; 25-50% in the small group market; and, 20-25% in the large group market.
UHC estimates that each of these market segments would have had a 12-15% rate increase in 2014 without the mandates and taxes associated with the ACA. This “trend” increase is the result of increases in the actual cost and usage of medical care, equipment and prescription drugs.
In addition to the trend increase, in 2014 consumers will also pay an additional 3.8% in taxes and fees mandated by the ACA. These taxes include: an 8 cent per member research fee; a 2.3% tax on insurers to pay for the subsidies to individuals in the Covered California Exchange; and, a $6 per member per month “reinsurance fee” that will reallocate catastrophic claims across all carriers. UHC estimates that these taxes will increase the cost of all health insurance plans by $15-$16 per month.
In addition to the trend and tax increases, all consumers will pay for product changes required by the ACA. These changes are most significant in the individual market because many of the benefits have been removed or reduced to make monthly premiums affordable.
In 2014 all medical insurance plans must include “essential benefits” which is a list of 10 items including coverage for maternity care; in and out of hospital care; rehabilitation services; and the treatment of mental illness on parity with other medical conditions. Also, beginning in 2014 all plans must include pediatric dental and vision services.
The individual market will also see increases associated with ACA rules that: 1) forbid insurers to charge more to people with pre-existing medical conditions; and 2) compress the rates for youngest to oldest subscribers.
UHC estimates that product and rating rule changes will increase rates by 100 percent in the individual market. The combined effect of the trend increase, taxes, and rating and product changes will result in premium increases of 116% in the individual market.
Small groups will see premiums increase due to the trend increase, taxes, rate compression between the youngest and oldest enrollees; and less significant product changes. UHC estimates that product changes will increase rates by only 5 percent in 2014. So, the trend increase of 15%, taxes 3.8% and product improvements of 5% will total about 25% in the small group market.
Small groups in California that have many young, healthy enrollees and currently have the lowest rate (a Risk Adjustment Factor (RAF) of 0.90) will likely see an additional increase of about 25% according to UHC. The ACA eliminates the RAF system in 2014 so that all small groups will pay the same rate, regardless of the health condition of employees and dependents. This will impact the groups with the currently lowest rates the most. UHC estimates that these small groups will see 50 percent rate increases in 2014.
Large groups will see the least increase from the ACA because health insurance plan benefits already are more comprehensive. UHC estimates that large groups will see a 20-25% increase in 2014.