Remember that dire report commissioned by the Mass Association of Health Plans from July (it’s here (pdf))?
The report was an attempt to forecast the impact of the ACA on small group and individual premiums in Massachusetts. The ominous Globe headline was “National health care overhaul apt to push up costs.” The story said:
The analysis, by Wakely Consulting Group, projects President Obama’s health care law — supported by the Patrick administration — will tack an average of 3.7 percent on to premiums.
That would be on top of typical base rate increases, driven by hospital and doctor’ fees and demand for medical care, which have ranged from 2 to 4 percent in recent years.
Combined, the cost of insurance would almost certainly exceed the state’s benchmark for increases. The goal of a cost-containment law enacted last year was to cap overall increases at 3.6 percent — the rate of economic growth projected in 2014.
[Aside: Now the Globe story was wrong about the state's benchmark for Chapter 224, which sets the 3.6% growth limit as a goal for total medical expenses (including out of pocket costs), not premiums. But still, having just the ACA push up rates 3.7% would be worrisome.]
There are two components to premiums for 2014. First is the one-time impact of the rules changes made by the ACA. That’s what the 3.7% finding in the study was about – the ACA market impact. Second is the annual regular increase (called “medical trend”), due to the increased cost of medical care, more use of services and so on.
The ACA market forecast was based on new mental health benefits being added to plans, a tax on health plans that funds the ACA being passed on, and the addition of the less-healthy CommCare population into the commercial market. This was supposed to add up to a one-time 3.7% hike in premiums. Add to this medical inflation and more utilization, and we might see total increases of 5%-7% or more.
We were more sanguine about the forecast. After all, the report was a guess about a guess. The task was to predict what insurers would predict about the impact of changes to the market next year due to the ACA. So of course it was speculative, with a margin of error.
Well, on Friday we learned the true impact of the ACA on premiums in Massachusetts, when the Division of Insurance released its approved rates (the table of approved rates is on the WBUR CommonHealth blog). On average, it appears the Massachusetts ACA market impact will result in a reduction in premiums, not an increase.
The weighted average increase is just 1.8%, not 5%-7%, for small group and individual premiums for the year starting in 2014. This is less than medical trend. Even if it was all market factors it is still comfortably less than some had feared.
The MAHP report also looked at the impact of the phase out of some of our “rating factors” – the individual characteristics of firms or individuals that let insurers either provide extra discounts or tack on extra surcharges to arrive at final rates. This has also engendered much hand-wringing, as some business groups continue to press for “relief.”
But with relief would come grief. That’s because the impact of the change in rating factors is completely cost-neutral across the market. Every increase in rates due to someone losing a discount is matched by a decrease in rates for someone not having to pay an added surcharge. While the process of adopting to the new system will be painful for some, the result will be a more even, fairer system of insurance rates.
We have lots to do in Massachusetts to get health costs and premium prices under control. Let’s get back to work.