RAND: No Widespread Increase in Cost of Individual Health Insurance Policies under Affordable Care Act

While there have been some reports that the cost of individual policies may jump sharply under health reform, a RAND analysis of 10 states and the United States overall predicts that there will be no widespread premium increase in the individual health insurance market.

However, researchers caution that the cost of policies in the individual market will vary between states and will be influenced by individual factors such as an individual's age and whether they smoke, as well as whether they qualify for federal tax credits to help cover the cost.

"Our analysis shows that rates for policies in the individual market are likely to vary from state to state, with some experiencing increases and some experiencing decreases in cost," said Christine Eibner, the study's lead author and a senior economist at RAND, a nonprofit research organization. "But our analysis found no widespread trend toward sharply higher prices in the individual market."

RAND researchers modeled how the Affordable Care Act is likely to change cost and coverage patterns in both the individual market and small group market in 10 states - Florida, Kansas, Louisiana, Minnesota, New Mexico, North Dakota, Ohio, Pennsylvania, South Carolina and Texas. The report also considers the potential consequences for health insurance enrollment if Medicaid is not expanded in Texas, Louisiana and Florida.

Under the federal Affordable Care Act, insurers who sell policies to individuals and small groups (pools of fewer than 50 people) must offer coverage regardless of health status or pre-existing conditions. Prices can vary by only a few factors, including age, tobacco use, geographic location, family size and the amount of coverage purchases. The oldest person can be charged three times as much as the youngest adult, with smokers paying up to 1.5 times more than nonsmokers.

Researchers used an updated version of the RAND COMPARE microsimulation model, which predicts the effects of health policy changes at state and national levels, to estimate the likely impacts of the Affordable Care Act on the individual and small group markets once the law is fully in force. Among the study's findings:

• There is a considerable range among states in the number of people who will remain uninsured under the Affordable Care Act. For 2016, the study's estimates range from a low of 5 percent in Minnesota to a high of 12 percent in Texas. States with larger immigrant populations, such as Texas and Florida, will tend to have more uninsured people.
• The number of people who buy individual policies under the Affordable Care Act will more than double. In 2016, enrollment in the individual market will rise from 4.3 percent of the nonelderly to 9.5 percent of the nonelderly.
• Prices in the individual market will vary among states. The analysis showed that in 2016 there will be no premium changes in the United States overall and in five states (Florida, Kansas, Pennsylvania, South Carolina and Texas). Three states (Minnesota, North Dakota and Ohio) could face premium increases of up to 43 percent, although those costs may be covered by federal tax credits. Louisiana and New Mexico may face premium declines. The differences are explained largely by the proportion of a state's residents who have insurance. Minnesota, North Dakota and Ohio all have low numbers of uninsured residents, meaning fewer young, healthy people will be brought into the individual insurance market as a result of the law.
• The Affordable Care Act will increase the number of people insured in the small group market. There will be increases in small group coverage of up to 5 percentage points in the United States overall and in seven states (Florida, Louisiana, Minnesota, New Mexico, Ohio, South Carolina and Texas). Three states (Kansas, North Dakota and Pennsylvania) will experience declines in the small group market of up to 2.2 percentage points.
• Small group premiums largely will be unchanged under the Affordable Care Act. For the U.S. overall and in nine states (Florida, Kansas, Louisiana, Minnesota, North Dakota, Ohio, Pennsylvania, South Caroling and Texas) small group premiums will see only minimal differences from existing levels.

The study also includes an analysis of the effect of Medicaid expansion on premiums in the individual market if Texas, Louisiana and Florida decide not to expand Medicaid under the Affordable Care Act. If this occurs, many more people will be forced into the individual market to buy health insurance. The analysis found that the shift will cause rates in the individual insurance market in the three states to rise by 8 to 10 percent.

The research was sponsored by the Center for Consumer Information and Insurance Oversight, a division of the Center for Medicare and Medicaid Services, and the office of the Assistant Secretary for Planning and Evaluation in the Department of Health and Human Services.

The report, "The Affordable Care Act and Health Insurance Markets: Simulating the Effects of Regulation," is available at www.rand.org. Other authors of the study are Amado Cordova, Sarah A. Nowak, Carter C. Price, Evan Saltzman and Dulani Woods.

RAND Health is the nation's largest independent health policy research program, with a broad research portfolio that focuses on health care costs, quality and public health preparedness, among other topics.