The ACA significantly altered the rules governing the individual insurance market, and the general effect was to lower premiums for older and less healthy people and raise premiums for younger and healthier people. To induce younger and healthier people to enroll, the law contained the individual mandate and subsidies for both buyers and, for the first few years of the program, sellers of insurance in the form of premium stabilization programs.
This study analyzes data from HHS from 2014, the first year of the ACA’s implementation, and finds that insurers suffered significant losses despite eventually receiving much larger payments from the law’s reinsurance program (one of the premium stabilization programs) than they expected when setting their 2014 premiums. Given the same population and same utilization of services from that population, insurers would have had to price average premiums more than 25 percent higher to avoid losses in the absence of the reinsurance program.
While insurers’ performance varied significantly across carriers and states, the large overall losses in 2014 raise questions about the long-term stability of the changes made by the ACA, particularly after 2016 when the reinsurance and risk corridor programs end and premium revenue must be sufficient to cover expenses.
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Medicaid’s complex federal-state financing structure has long created perverse incentives that discourage efficient care. Key to the problem is the federal government’s uncapped reimbursement of state Medicaid expenditures, which encourages states to artificially inflate their Medicaid spending. Such schemes have significantly increased over the past several years and they likely add tens of billions in generally low-value Medicaid spending each year.
This study examines states’ use of accounting schemes to inflate federal Medicaid reimbursements. The study focuses on the largest of the current schemes, provider taxes. These are assessments states levy on healthcare providers, often accompanied by the explicit or implicit guarantee of increased Medicaid payments to those same providers, financed from the federal matching funds. The study provides an economic and political analysis of these taxes and other strategies that states have employed to maximize federal Medicaid reimbursements, and recommends reforms. It contains an appendix with a case study of Arizona, which shows how the state imposed provider taxes to pay for Medicaid expansion.
KEY FINDINGS
- At least 70% of the recent slowdown in health care spending per capita—and possibly as much as 98%—can likely be explained by long-standing patterns known to affect health care spending trends, not by new, unexplained conditions in the medical sector.
- Breaking down those figures, roughly 41% of the slowdown probably resulted from the decline in real per capita income because of the Great Recession.
- Other factors known to affect health care spending growth—such as changes in the number of physicians and hospital beds per capita and in the percentage of the population with insurance coverage—account for somewhere between 32% and 57% of the slower health care spending growth.
- The projected expansion of Medicaid coverage owing to the ACA will likely raise national health care spending in 2019 to about 1% higher than it would have been without the expansion.
When the Patient Protection a
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nd Affordable Care Act (ACA) was signed into law in 2010, many groups projected how many people would enroll in health insurance plans satisfying the law’s new rules and requirements (ACA plans). Nearly six years later, enrollment in health insurance exchange plans is far short of initial projections, particularly for people who earn too much to qualify for subsidies to reduce high ACA plan deductibles. The dearth of exchange enrollees with at least a middle-class income indicates that the individual mandate is not motivating as many people, particularly younger, healthier, and wealthier people, to purchase coverage as was originally expected. Large insurer losses on ACA plans show that the overall risk pool is sicker and much more costly than originally projected, and are an indication that the law may require significant revision in order to avoid causing an adverse-selection spiral.
Proponents of the Affordable Care Act (ACA) have frequently pointed to official cost estimates projecting that the law will reduce federal budget deficits. Much less attention has been paid to the primary reason for this favorable outlook: the law’s heavy reliance on indexing important provisions to restrain spending and increase revenue. These components of the ACA will automatically impose perpetual, across-the-board cuts on payments to certain institutional medical providers; increase premiums for lower-income households; and raise taxes on an ever-expanding segment of taxpayers.