The “Rate Shock” Myth

As Affordable Care Act opponents continue grasping at straws to find fault with the law, an assertion perpetuated by the insurance industry that the ACA’s coverage expansions will significantly increase premiums has gained prominence. Lately, many insurance industry-funded studies and the resulting news coverage of them have focused on the potential for “rate shock” for the young and healthy, fear mongering young adults and others into thinking their rates will skyrocket come 2014. None of these reports address all of the protections written into the bill to prevent steep rate changes and many fail to accurately represent the true scope of benefits and costs. Community Catalyst has prepared this fact sheet to help cut through some of the confusing arguments swirling around.

Very few people will be affected by significant rate changes. To give a sense of how small this number is, more than half of employed 19-44 year-olds were covered through their employers. Of those who are not offered insurance through an employer, 92 percent of young adults expected to enroll in individual plans with subsidies through the Exchanges would not be subject to premium increases. This is not to say that nobody will experience rate changes, but it is important to understand the relative impact of increases and the small number of people affected.

Rate changes will primarily impact young men between the ages of 19-27, who have incomes higher than 400 percent of the federal poverty level (more than $45 thousand per year) and are not covered through their employers. And even these individuals will only experience moderate changes – on average an increase of 10-13 percent compared to current non-group rates, according to the Congressional Budget Office.

Most importantly, the ACA means everyone will gain increased value per health care dollar through better benefit packages and limits on how much patients can pay out-of-pocket. New plans will be required to meet certain standards of benefits, including covering maternity, mental health, prescription drug coverage, and charging no co-pay or deductible for preventive services including cancer screenings and contraception. These new standard benefits ensure that consumers will get greater value and better protections than many plans currently provide. Young adults will also have the option of enrolling in a catastrophic coverage plan that covers the same benefits but offers lower premiums with a higher deductible.

The law also makes the system fairer across gender and age groups. Currently, insurers commonly charge women more than men, simply because they have the potential to incur more costs through maternity care. This unfair practice costs women in the private market approximately $1 billion per year, but is outlawed under the ACA starting in 2014. Similarly, insurers are allowed to charge older adults significantly higher rates. The ACA places limits on this practice so older adults can only be charged a maximum of three times as much as younger adults. This change reflects a more accurate approximation of the health cost differences between young and old, correcting years of overcharging adults for their health care services. Finally, the ACA ends discrimination against those who have preexisting conditions. This is not irrelevant for young adults, since 16 percent of 16-24 year olds have preexisting conditions and either are unable to gain coverage or are pay higher rates because of their medical history.

When it all shakes out, the benefits of the ACA for young adults far outweigh any costs. The impact of premium changes will be limited, will help make the health insurance system fairer, and will ensure consumers get more bang for their buck.

Sarah Gordon, Private Insurance Team Intern
Community Catalyst

(Blog originally appeared here on the Health Policy Hub)