Will premiums go down if the ACA is Replaced? Yes, let’s see how & why!

The need for this post was spawned as a result of a cable news show I watched last week. The host of the #1 cable news show for 16 years (and still counting) was interviewing a celebrity businessman billionaire. The business man was adamant that healthcare premiums will not come down if the ACA is replaced. His question was “Who’s going to take less?” That might seem like a good point to non-insurance folks, right?

However, he is flat out dead-wrong. But because he has his celebrity platform from which to speak its possible that he could misinform other folks so I felt it imperitive to explain why and how premiums can be lower once the ACA is replaced. It’s not complicated.

As we have discussed in previous posts the ACA has provisions which artificially increase premiums. Those provisions cause the formulas and expectations used by actuaries to increase the resulting premiums and there is not a thing the actuary can do about it. We’ll point out just three of these artificial cost drivers.

Three ACA provisions that artificially drive up premiums:

  • 3:1 premium requirement – this provision mandates that the premium for the highest rate bracket (age 64 usually) can be no more than 3 times the lowest rate bracket. So, since folks age 64 are obviously more likely to incur healthcare expenses than people age 26 (and their care at age 64 is typically for more expensive care) actuaries must price their plans so that older brackets are properly priced. The premiums on the younger brackets must then be increased to accommodate the 3:1 pricing restriction.
    Plus, human nature being what it is and actuaries generally being cautious people the entire rating model is bumped up a bit to cover any unexpected anomaly. That’s one.
  • MLRs – stands for Minimum Loss Ratio which mandates that health plans for smaller employers (under 100 EEs) must pay out 80% of the premium received toward claims or else rebate the balance under the artificial  plateau of 80%. Insurers get to average their plans but the cost of “rebating” funds under the 80% level is very expensive so it is something they try to avoid. This means that even if an insurer had the good fortune to have lower claims than expected which resulted in a 70% loss ratio (potential profit)the insurer can’t keep the balance as profit. This can make their actuarial calculations be skewed and they can be influenced across their other plans to increase the probability that rebates are not required. That’s two!
  • Fees & taxes – these are a no brainer. The premiums we have all been paying for the past several years have fees added in for PCORI, for Transitional Reinsurance, for state Exchanges to mention a couple. These fees can range from $2 for PCORI to $9 dollars to over $18 dollars for your local state Exchange.
    Taxes, of which there are at least 18, are another “load”  added in to premiums for the ACA. Fees & taxes, ouch! That’s three!

That’s just three provisions set into the ACA that push our premiums higher. Possibly the worst thing about these artificial cost is that they push premiums up before the first claim is incurred. Before you or I go the doctor for the first time these provisions push rates higher.

Even if a population of covered people is healthy its premiums must be pushed up over what is actuarially needed simply due to provisions added to feed the ACA and special interest groups.

I know that I sometimes make some of these ideas sound simple. I also know that as soon as they are introduced by our legislators the special interests and media will attack the messenger. That is why it is necessary to clearly describe for our citizens just how these steps will be implemented and how these steps will help. I’d like to give our citizens the benefit of any doubt concerning their ability to comprehend the changes so I believe they will support the changes if it is explained clearly.

As I said above, my concern is that celebrity “experts” will bang the drum for no change or that change won’t reduce cost which is not true.

Next week we’ll discuss another idea for reducing premium.
It’s a good one.
Let me know what you think because we are all in this together.

Mark Reynolds, RHU


2 Responses to “Will premiums go down if the ACA is Replaced? Yes, let’s see how & why!”

  1. Bruce Horner Says:

    Nicely written

  2. Mark Reynolds, RHU Says:

    Hey Bruce. thanks for the reply.
    Next week will be RBP.
    I am doing research on Tort reform for a future post.
    I’d like your comment on my post of Access vs Affordability.
    Any topic suggestions.
    Hope you are doing well.

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