Factors Affecting Individual Premium Rates in 2014 for California

By Robert Cosway and Barbara Abbott
Report prepared for Covered California, Milliman, March 28, 2013

Covered California retained Milliman to evaluate the changes in individual health insurance premium rates that might be expected due to the implementation of the Patient Protection and Affordable Care Act (ACA) in 2014.

Summary of Potential Rate Changes for People Currently Insured (includes premium tax credits and cost sharing subsidies)

-83.8%  Less than 250% FPL
-46.6%  250% to 400% FPL
+30.1%  Greater than 400% FPL

Cost at time of care (cost sharing)
-61.8%  Less than 250% FPL
-27.3%  250% to 400% FPL
+ 1.2%  Greater than 400% FPL

Total cost of care: Premiums plus cost sharing
-76.2%  Less than 250% FPL
-39.9%  250% to 400% FPL
+20.1%  Greater than 400% FPL

In general, we expect the average currently insured to experience premium increases because they will be part of a new risk pool with a higher average health status. The federal premium tax credits and cost sharing subsidies will more than offset these increases for many low income individuals.



Cost of the Future Newly Insured under the Affordable Care Act (ACA)

Society of Actuaries, March 2013

Note that the ACA’s affect on premium is not modeled in this research; rather, long-term relative claims cost is modeled.

This analysis will primarily focus on the individual, non-group market.

Finding 3: The non-group cost per member per month will increase 32 percent under ACA, compared to pre-ACA projections.

The post-ACA figures include the impact of a) high risk pool members, b) employers dropping group coverage, and c) increased morbidity from selection by those currently uninsured who now purchase coverage.


These two actuarial reports project the potential financial impact of the Affordable Care Act (ACA) on individuals obtaining coverage in the non-group market. The reports are quite complex. Let’s see if we can separate what these reports really say from what the politicians are saying about them.

The excerpts above do not refer to employer-sponsored coverage nor do they refer to Medicaid. They refer only to the differences in plans offered in the individual market before ACA and those to be offered after the ACA exchanges are established next January.

The Society of Actuaries reports that cost of claims, not premiums, will increase 32 percent, but, again, only in the individual market. This increase is due to the change in the mix of individuals covered by these plans. The plans will include more costly individuals who have been insured by the state high-risk pools; they will include individuals dropped by employers from their group coverage, and they will include the previously uninsured who have increased morbidity (i.e., poorer health status).

So those politicians who are using this report to claim that “health care costs are going up 30 percent under Obamacare” either do not understand the report, or they are being dishonest. It is only the insurance pools in the individual market that add in unhealthy individuals that are projected to have 30 percent increases in the cost per enrollee, when compared to the cost per enrollee of current plans in the individual market that have been successful in keeping out individuals with greater health care needs.

The Milliman analysis looks at the pre-ACA and post-ACA change in the premiums, not the change in the cost of claims, but they also include the changes in what the individual actually pays when the premium tax credits and cost sharing subsidies are included. Those individuals with incomes below 400 percent of the federal poverty level will pay significantly less than they would in the current individual market.

For individuals who do not receive subsidies or tax credits, the premiums will increase about 30 percent – again because of the change in the mix of the insurance pools which will include enrollees with greater needs. But the total premiums plus cost sharing are expected to increase about 20 percent since there will be almost no change in cost sharing for these higher-income individuals.

So are the costs for the individual market insurance pools going up 20 percent or about 30 percent? Considering the differences in higher-income individuals in one study and the entire individual market in the other study, the separate impact on premiums, cost sharing, and claims, and the variations in actuarial assumptions, these numbers are quite close. Let’s say 25 percent.

But the number doesn’t matter. Whatever it is, it merely represents the fact that insurers offering individual plans must now sell them to anyone who wishes to enroll, no matter how expensive their medical problems may be. By segregating individuals into different insurance pools, the premiums will have to be set based on how healthy or sick that pool is, especially since risk adjustment is only capable of correcting for just a minor portion of the inequities. Administrative complexity and inequities are inevitable under ACA.

The lesson is that it would be much simpler and much more equitable to have a single insurance pool that covers everyone, and fund it through progressive tax policies. Fix Medicare, improve the tax structure, and use it for everyone.