Two scholars at the renowned Brookings Institution, Loren Adler and Paul Ginsburg, have published an analysis finding that “average premiums in the individual market actually dropped significantly upon implementation of the ACA [Affordable Care Act].” This contrasts with a plethora of evidence, including a rigorous 2014 Brookings study, showing that the ACA significantly increased premiums. In this post, I discuss methodological concerns with the Adler and Ginsburg approach as well as evidence that leads most scholars to reach a very different conclusion.
While I will discuss the relevant evidence of the ACA’s effect on premiums in depth, there are three data points worth emphasizing. First, unlike Adler and Ginsburg’s approach, Brookings 2014 study used actual data and found that “enrollment-weighted premiums in the individual health insurance market increased by 24.4 percent beyond what they would have had they simply followed…trends.” Second, S&P Global Institute found that average individual market medical costs increased substantially between 2013 and 2015, up an estimated 69%. Third, 2014 insurer data shows that premiums for individual market Qualified Health Plans (QHPs), ACA-compliant plans certified to be sold on exchanges, were much higher than premiums for individual market non-QHPs, mostly plans in existence before 2014 that did not comply with the ACA. Relative to non-QHPs, insurers collected more than $1,000 per enrollee in higher premiums and more than $2,300 in higher premium revenue per enrollee in 2014 after accounting for large premium subsidy programs for their QHPs.
Adler and Ginsburg do not discuss this previous research, and their analysis also fails to account for other crucial factors. They do not account appropriately for substantial subsidies insurers received to discount individual market ACA plan premiums. They also do not consider the trend in medical claims costs, which is presumably a better measure of the ACA’s effect on the individual market thus far given both the large subsidies and large losses insurers have incurred selling ACA plans. Instead, most of their analysis relies upon crude back-of-the-envelope estimates for the average individual market premium in 2009 as well as well as for an annual growth rate to inflate their 2009 premium estimate.
Finally, it is worth noting that if Adler and Ginsburg were correct in their analysis, we would expect to see very different results than have occurred. If, as they claim, the ACA was delivering better coverage at lower cost, the exchanges would have attracted a wider cross-section of enrollees and more insurers would be looking to enter these markets. Instead we see adverse selection in the individual market, with spiraling premiums, sizeable insurer exits, and enrollees generally attracted to ACA plans only if they are either highly subsidized or relatively old or unhealthy.
Ample Evidence Shows Average Premiums and Spending Exploded After ACA Implementation in 2014
While it is important to look at data for several years after 2013 to assess the impact of the ACA, comparing individual market premiums in 2013 with those in 2014—the year its key changes took effect—provides an approximation of the initial change. The Manhattan Institute compared the average of the five least expensive pre-ACA plans in 2013 with the least expensive plans available on exchanges in 2014. Manhattan’s researchers adjusted the pre-ACA plan premiums upward to account for the population facing surcharges or denied coverage because of a pre-existing condition. Manhattan estimated that the average state individual market premium increased 41% between 2013 and 2014. A county-level analysis suggested that premiums increased by 49%.
The 2014 Brookings study on this same subject by Amanda Kowalski—and unaddressed by Adler and Ginsburg—used actual pre-ACA individual market premium data, finding that “[a]cross all states, from before the reform to the first half of 2014, enrollment-weighted premiums in the individual health insurance market increased by 24.4 percent beyond what they would have had they simply followed state-level seasonally adjusted trends.” According to Kowalski, the Manhattan Institute estimates are higher likely because they were not enrollment-weighted, and individuals in areas with high premiums likely selected cheaper plans.
Economists at the University of Pennsylvania, also using actual pre-ACA individual market data, estimated that the total expected price of individual market coverage (premiums plus out-of-pocket payments) increased by 14% to 28% as a result of the ACA. According to their findings, “the pre-ACA average premium was lower than the lowest silver plan premium.” Penn’s economists also estimated that plans in the individual market before the ACA had similar actuarial value to silver plans, not an average actuarial value that was 10 percentage points less (and 17% less) than assumed by Adler and Ginsburg. Importantly, all of these studies compare gross premiums before and after the ACA without accounting for subsidies that lowered ACA plan premiums.
Perhaps the most striking visual data that suggest Adler and Ginsburg’s conclusions are wrong is an S&P Global Institute analysis of individual market per member per month (PMPM) costs from May. The figure below from the S&P report shows trends in PMPM costs for the individual and employer-provided markets. The ACA is responsible for the huge spike, clearly shown in the figure, in the individual market PMPM costs, which by early 2015 exceeded PMPM costs in the employer markets.
The data shows a huge increase in PMPM costs in the individual market between 2013 and 2015. According to S&P, PMPM costs increased 38% between 2013 and 2014, and another 23% between 2014 and 2015. The two-year increase (69%) is the product of the two single-year increases.
The comparable PMPM cost increase in the employer market, which the ACA affected much less, amounted to about 11%. Assuming an 11% increase would have happened in the individual market absent the ACA, a very rough initial guess would be that the ACA increased individual market PMPM costs by about 58% between 2013 and 2015. As previously noted, premiums did not increase by this full 58% because of insurers’ large losses and the large subsidies they received.
It is worth noting that the individual market includes both ACA-compliant plans as well as non-ACA-compliant plans. If only ACA-compliant plans were included in the post-2013 data, the spike would likely be much larger.