Signs Point to Yes

The preliminary numbers look like the Affordable Care Act (ACA) is going to work as intended. Insurers were required to declare if they were going to and what plans and premiums they would offer in the individual exchanges by early May. In Georgia, seven insurers are participating in all or parts of the state. The premiums and plans they are offering resemble those currently offered by large employers.

A central question is whether the private insurance market as reconfigured by the ACA will be sustainable. A sustainable private insurance market is possible only if adverse risk selection is managed. Adverse risk selection is the fact that individuals with the highest demand for health insurance are those with the greatest health care needs. No insurance market can be sustained if the only people purchasing insurance are those about to file a claim.

Currently almost 95 percent of those with private health insurance coverage purchased that coverage through an employment-based plan. That is no accident, nor solely a function of the tax preference for employment-based coverage. It created through a market innovation that mitigated adverse selection: the bundling of employment with health insurance coverage. By bundling health insurance into the compensation of employees the decision to purchase health insurance coverage was no longer a simple calculation of an individuals risk of needing care (health) and the cost of coverage. More individuals with low risks of needing health care purchased coverage so the premiums were lower so more people got coverage.
There are major differences between group and individual coverage however. Group plans pool costs together and charge every participant the average costs for the group. That means that healthy workers and their families pay more than they would if rated individually while less healthy workers and their families pay less then they would if individually rated.

In the current individual insurance marketplace only those who can demonstrate their good health are offered coverage. The ACA changes the individual market starting in 2014 so that everybody who applies will be offered coverage and the premiums for the same plan can only vary by age, tobacco use, and region of the state. That means that younger healthier individuals face higher premiums, but everybody is offered coverage.

The question is will enough young and/or healthy individuals participate in the individual market to make it viable. Looking at the prices filed for the 2014 exchanges its clear that younger adults will pay more than those who can get coverage now, but the coverage would be more generous. They are not required to buy that more generous coverage if they are under 30: they can elect to purchase a catastrophic plan that resembles the plans many are now offered.

Currently the about half of the adults with individual coverage in Georgia are under 30; about 220,000 people. That same age cohort accounts for about 30 percent of the uninsured and 20 percent of the group health market. What the insurers who are participating in the exchanges have estimated even if a large percentage of younger adults decline to participate in the individual market the resulting risk pool will resemble current risk pool for large groups. In other words: a sustainable market. The subsidies available by income in the exchanges are likely to increase the participation of younger individuals.

There will remain important sources of disparity in access to health insurance. A major component of the ACA’s effort to increase access to health care is the expansion of Medicaid eligibility to those whose family income is less than 133 percent of the Federal Poverty level. The subsidies in the exchanges are only available to those whose family income is over poverty. States who elect not to expand Medicaid will leave many families without access to either public or private coverage. It is estimated that in Georgia that 600,000 people who would have gained coverage will remain uninsured as a result of declining to expand Medicaid.

While only about 30 states have elected to expand Medicaid, the return on investment for most the states currently not expanding is so large that it is likely that they will eventually opt in.

Regional differences in both price and choice will result in differences in access across Georgia. While individuals in the Atlanta area will have relatively low premiums and multiple plan choices, residents of south Georgia will face premiums as much as 40% higher and only two insurers. The ACA requires that two additional national plans be offered in each exchange, but in only 30 states in 2014. An email response to a request for information said they states and plans will be announced in July.

At this point in 2013 it appears that there are a competitive number of plans in most regions, premiums comparable to employment-based coverage, and sufficient demand to make the individual health insurance market sustainable in 2014 and beyond.

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