What happened to the “affordable” part of the Affordable Care Act?
A reader named David recently made a great comment on one of our posts. We’d like to highlight the questions he raised and do our best to answer them.
Here’s a summary version of his question:
“Why are health care costs and insurance premiums continuing to rise in view of the Affordable Care Act? …I was under the impression that the very purpose of the law was to bring health insurance costs down, not cause them to rise. My premium goes up significantly ever year. …My income cannot meet the rising costs of the insurance premiums. …Help me make sense of this, if you can.”
Here’s our reply:
Thanks for your terrific questions, David.
First of all, I just want to make it clear that we don’t consider it our job to justify the health reform law, only to help consumers make sense of their health insurance options and find the coverage they need. Recognizing that the ACA is law, we don’t want to take a political position on it.
That said, we have an awful lot of experience in the health insurance field and know a lot about the Affordable Care Act. We’re glad to give some perspective on this issue, because you’re far from alone in feeling the pinch and wondering how health reform is going to help.
The cost of health insurance is rising. That’s a fact. It’s worth noting, however, that the cost of health insurance has been on the rise since long before the signing of the ACA. It’s been outstripping inflation pretty much every year for well over a decade.
It’s hard to attribute current year-over-year increases to health reform alone, though that may account for some of it, since the health reform law improved the benefits offered under many health insurance plans. Higher quality products usually come with higher prices.
At the same time, the law limited the amount of profit health insurance companies can make. The ACA requires that 80-85% of all incoming policyholder premiums go to pay for member medical bills and health-related services. All of the insurance company’s overhead costs, including wages and profits, must come out of the remaining 15-20%.
The increasing cost of medical care itself is probably the single biggest factor that drives the increasing cost of health insurance today. As a result, health insurance costs will probably continue to increase as long as the cost of medical continues to increase. This would be true even if the health reform law had never been passed.
There are some mechanisms in the law designed to help control medical costs, but we’ll have to wait and see how well they work. For now, however, you’re right that the “Affordable Care Act” doesn’t always feel like it’s making things more “affordable” for everyday consumers.
Now, is health reform going to help you with the rising cost of your health insurance premiums in the future? Well, it may help, or it may not, depending on your situation. People with employer-based health insurance or small business owners who buy group coverage may not get much help, though some may qualify for special tax breaks.
People who buy health insurance on their own, however, may qualify for government subsidies. If you earn between 133% and 400% of the Federal Poverty Level (up to about $45,000 per year for a single person or $92,000 for a family of four), you may be due a subsidy in 2014.
The subsidies will work on a sliding scale. If you qualify, they’re intended to limit your cost for a mid-range health insurance plan to between 3% and 9.5% of your income, depending on where you fall within that Federal Poverty Level income scale. There are details here that we could go into, but that’s the basic idea.
So, are you going to get a break on your health insurance costs in 2014? You just might. But will the actual cost of health insurance start going down next year? Let’s cross our fingers on that one.